The
U.S. government has in recent years exhibited an increasingly aggressive
approach in prosecuting individuals for alleged violations of the Foreign Corrupt Practices Act, (“FCPA”). The FCPA prohibits, inter
alia, any domestic individual
or business entity from making payments to a “foreign official” for the purpose
of obtaining or retaining business 15 U.S.C. § 78dd-2(a)(1). Prosecutors have pushed an expansive view of who is a foreign official
in recent years, in pursuing many cases where bribes were paid to officials at
state-owned companies.
Under
the FCPA, a “foreign official” is defined as: “[A]ny 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 or department, agency, or instrumentality.” U.S.C. § 78dd-2(h)(2)(A).
The term “instrumentality” is, however, not defined in the FCPA, leading to
many difficulties for foreign businesses and to uncertainty. For example
whether an employee of a state-owned company is a foreign official depends, in
part, upon whether state-owned companies are considered to be
“instrumentalities” of a foreign government.
Recent U.S. district court cases have held
that state-owned or state-controlled entities may qualify as government instrumentalities, and hence employees
and officers of such entities may be “foreign officials” within the meaning of
the FCPA. Thus the determination is a fact-specific inquiry. For example in United
States v. Carson, (C.D. Cal. May 18, 2011), the court identified several
relevant factors to be weighed in the enquiry, including (a) the foreign
state’s characterization of the entity and its employees; (b) the foreign
state’s degree of control over the entity; (c) the purpose of the entity’s
activities; (d) the entity’s obligations and privileges under the foreign
state’s law; (e) the circumstances surrounding the entity’s creation; and (f)
the extent of the foreign state’s ownership of the entity and level of
financial support provided to it. The court emphasized that state ownership by
itself is insufficient to determine that the company is an “instrumentality” under
the FCPA.. In United States v. Aguilar, 783 F. Supp. 2d 1108 (C.D. Cal.
2011), in addition to several of the factors identified by the Carson
court, the Aguilar court also looked at whether the entity provides a
service to the citizens of the jurisdiction; whether key officers and directors
are, or are appointed by, government officials; and whether the entity is
perceived and understood to be performing official government functions. Such
an interpretaion would appear to be more in line with the definition of a
public enterprise set out in the OECD Anti-Bribery Convention.
On
September 18, 2012, the U.S. Department of Justice (“USDOJ”) issued Opinion Release
12-01, which addresses the question of who is a “foreign official” under the FCPA. The Opinion Release was issued
following the request for such by a U.S. Lobbying Firm that planned to hire a
consulting firm to advise it, inter alia,
as to how best to obtain a contract to represent a foreign country’s embassy in
its U.S. lobbying activities. One of the Consulting firm’s partners is a member
of the foreign country’s royal family and the lobbying firm sought guidance on
whether this royal family member constituted a “foreign official” for the
purposes of the FCPA.
The
USDOJ stated that the Royal Family Member does not constitute a foreign
official under the FCPA “so long as [he] does not directly or indirectly
represent that he is acting on behalf of the royal family or in his capacity as
a member of the royal family.” The
USDOJ considers that the analysis requires a “fact-intensive, case-by-case
determination” based on a variety of factors, including:
The
structure and distribution of power within the foreign country’s government;
The royal
family’s current and historical legal status and powers;
The
individual’s position within the royal family;
The
individual’s present and past positions within the government;
The
mechanisms by which the individual could come to hold a position with
governmental authority or responsibilities (e.g., royal succession);
The
likelihood that the individual would come to hold such a position; and
The
individual’s ability, directly or indirectly, to affect governmental
decision-making.
In
examining the characteristics of a “foreign official,” the USDOJ also cited
factors such as those applied in United
States v. Carson, in addressing whether a state-owned entity may be an
“instrumentality” of a foreign government, they include:
The foreign
state’s characterization of the entity and its employees;
The foreign
state’s degree of control over the entity;
The purpose
of the entity’s activities;
The entity’s
obligations and privileges under the foreign state’s law;
The
circumstances surrounding the entity’s creation; and
The foreign state’s extent of ownership of the entity, including
the level of financial support provided by the state.
This
Opinion Release however focuses again on a fact specifc, case by case enquiry
and gives no real clear guidance as to what is or is not an instrumentality in
legal terms.
The
uncertainty surrounding the definition however may be about to change. The question of what constutes an
instrumentality is now before an apeallate court for the first time. Two former
executives of Terra Telecommunications who were convicted in August 2011 of
bribing officials at Haiti Teleco, a state-owned telecom company in Haiti,
raised the question in briefs filed with the U.S. Court of Appeals for the
Eleventh Circuit earlier this year.
The USDOJ has defended its definition of “foreign
official” in a brief filed with the U.S. Court of Appeals for the 11th Circuit.
The reluctance to
more clearly define or provide guidance on the term foreign officials and instrumentality
has worked to the USDOJ’s favour, enabling agressive pursuit of a wide variety
of targets that would likely not be caught under equivalent legislation in
other jurisdictions. The OECD Anti-Bribery Convention (to which the United States
is a party) defines a foreign public official as “any person holding a legislative, administrative or judicial office of a
foreign country, whether appointed or elected; any person exercising a public
function for a foreign country, including for a public agency or public
enterprise; and any official or agent of a public international organisation. ”
"Public function" is defined as including any "activity
in the public interest, delegated by a foreign country, such as the performance
of a task delegated by it in connection with public procurement. ”
A "public agency" is defined as an entity constituted under
public law to carry out specific tasks in the public interest.
A
"public enterprise" is defined as any "enterprise, regardless of
its legal form, over which a government, or governments, may, directly or
indirectly, exercise a dominant influence. This is deemed to be the case, inter
alia, when the government or governments hold the majority of the enterprise's
subscribed capital, control the majority of votes attaching to shares issued by
the enterprise or can appoint a majority of the members of the enterprise's
administrative or managerial body or supervisory board."
The UK Bribery Act
uses the term Foreign Public Official (FPO). In line with the OECD
Convention an
FPO is an individual who holds a legislative, administrative or judicial
position of any kind (whether appointed or elected) in a country or territory
outside the UK, or who exercises a public function for and on behalf of a
territory outside the UK, or for any public agency or enterprise of that
country or territory, or is an official agent of a public international
organisation. Thus under the UK
legislation and the OECD Convention the term public is emphasised. It is the omission of the word public
and the term public function in the FCPA that arguably has allowed the USDOJ to
espouse such a broad interpretation and that has lead to such uncertainty.
The view of
the U.S. Court of Appeals for the 11th Circuit in U.S. v. Esquenazi and Rodriguez is
awaited with interest.