Archive for the ‘Foreign Official’ Category

Supreme Court Declines To Hear “Foreign Official” Challenge

Monday, October 6th, 2014

As highlighted in previous posts (here, here and here), the defendants in U.S. v. Esquenazi (see here for the May 2014 11th Circuit decision) petitioned the Supreme Court to hear the case – principally on the “foreign official” issue.  As previously noted, the cert petition was believed to be the first substantive FCPA cert petition in FCPA history and was supported by amicus briefs, including my own.

This morning, the Supreme Court, which decides its own docket, released this Orders List declining to hear the “foreign official” challenge in U.S. v. Esquenazi.

Cert denial in the case means that the 11th Circuit decision stands as a final decision.  Cert denial does not mean that the Supreme Court agreed or disagreed with the 11th Circuit decision.

As noted in previous posts, the Supreme Court has never heard an FCPA case.

*****

The below statement may be attributed to Professor Koehler.

“The reasoning of the Supreme Court in declining to hear the petition is not known, but is likely due to the absence of a circuit split on the “foreign official” issue.  This absence is largely a result of alternative resolution vehicles used by the DOJ (and SEC) as well as other discretionary decisions by the enforcement agencies. So long as these dynamics continue, Supreme Court review of the key elements of a top-priority federal criminal statute of significant importance to all businesses and individuals engaged in international commerce is unlikely.”

Counsel for Esquenazi (Markus Funk and Michael Sink – both of Perkins Coie) offered the following statement.

“Statistically speaking, having the Supreme Court hear Mr. Esquenazi’s case was of course a long-shot.  But, as the amicus petitions highlighted, the confusion the appellate court’s ruling added to the ongoing muddle of what qualifies as an ‘instrumentality’ of a foreign government provided some hope that the Court might weigh in on this issue of great concern to the global business community.  That the Court decided to pass on the opportunity is disappointing.”

Professor Koehler Files Amicus Brief Urging Supreme Court To Hear “Foreign Official” Challenge

Thursday, September 18th, 2014

This previous post highlighted the petition for certiorari filed in the Supreme Court requesting the Court hear U.S. v. Esquenazi (the recent 11th Circuit decision of first impression in which the court concluded that certain state-owned or state-controlled enterprises  (SOEs) can be “instrumentalities” of a foreign government such that employees of SOEs can be “foreign officials” under the FCPA).

Yesterday, my counsel Russell Ryan and Brandt Leibe (both of King & Spalding) filed this amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Under the heading “Introduction and Summary of Argument,” the brief states:

“The Petition presents this Court, for the first time in the FCPA’s thirty-seven year history, with the opportunity to construe a key element of a top-priority federal criminal statute of significant importance to all businesses and individuals engaged in international commerce.

The issue presented in Question 1 of the Petition is whether a state-owned or state-controlled enterprise (“SOE”) can constitute an “instrumentality” of a foreign government as that term is used in the FCPA. If so, as the Court of Appeals held, employees of SOEs could qualify as “foreign officials” under the FCPA’s anti-bribery provisions such that anything of value offered or provided to them to obtain or retain business could violate the FCPA’s criminal anti-bribery provisions.

The FCPA defines a “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization.” The FCPA’s legislative history indicates that Congress did not intend that statutory term to include employees of SOEs. In the legislative process that ultimately produced the FCPA, Congress specifically considered competing bills that would have included employees of SOEs as “foreign officials” yet rejected those definitions in the version of the FCPA it enacted.

The proper scope and meaning of the “foreign official” element of the FCPA’s anti-bribery provisions is an issue of extraordinary practical significance as it affects all businesses and individuals engaged in international commerce. The FCPA’s criminal anti-bribery provisions prohibit certain business conduct with “foreign officials,” but those prohibitions do not apply to conduct that does not involve a “foreign official.” Thus, it would not violate the FCPA to offer or provide something of value to a private customer, but offering or providing the same to a “foreign official” could be a crime. Consequently, drawing the line between individuals who could qualify as “foreign officials” and those who could not is critically important in a wide range of international business interactions.

An issue that has developed so little in the lower courts would not ordinarily satisfy the criteria for this Court’s review. However, the way FCPA enforcement actions are resolved makes it unlikely that lower courts will often consider this issue in the foreseeable future. The vast majority of FCPA investigations are resolved through out-of-court settlements including non-prosecution agreements (“NPAs”), deferred prosecution agreements (“DPAs”), and other administrative settlements not subject to judicial scrutiny. As a result, courts rarely construe the FCPA. The court below was the first Court of Appeals to address this statutory issue since Congress first enacted the FCPA thirty-seven years ago. Given these dynamics, there is little reason to believe that other federal appellate courts will examine this issue in the foreseeable future. Yet the Eleventh Circuit’s erroneous interpretation of the statute is likely to affect numerous future FCPA enforcement actions — negotiated and resolved in the absence of judicial scrutiny and in the shadow of scant precedent interpreting the FCPA — and thus the conduct of countless businesses and individuals subject to the FCPA.

The Eleventh Circuit’s interpretation of the statute was erroneous. The decision below failed to consider the enacting legislative history of the provisions it construed. It instead mistakenly relied on amendments enacted more than twenty years later and mistakenly concluded that those amendments were intended to bring the FCPA into strict conformity with the OECD.

The Eleventh Circuit’s express reliance on amendments to the FCPA in 1998 is flawed in at least two respects. First, the 1998 amendments to the FCPA are, on their face, irrelevant to the statutory-interpretation question at issue in this case because those amendments did not modify the portion of the “foreign official” definition in question here. Second, contrary to the Eleventh Circuit’s conclusion, the 1998 amendments did not fully conform the FCPA to the OECD Convention. Because they did not conform the FCPA to the OECD Convention, the amendments the Eleventh Circuit relied upon do not support the conclusion that the FCPA’s “foreign official” element includes employees of SOEs.

Amending a key element of a top-priority federal criminal statute of such significance to international commerce is not properly accomplished through a process of judicial inferences about the supposed purpose of subsequent, unrelated statutory amendments. Rather, actual legislative action is required to amend the FCPA. If Congress wished to include employees of SOEs in the statutory definition of “foreign official,” it easily could have done so — when enacting the FCPA in 1977, when amending the FCPA in 1998, or on any other occasion. Congress has expressly included employees of SOEs in similar statutory definitions contained in other legislation passed both before and after the enactment of the FCPA. Similarly, the legislative bodies of several signatory countries to the OECD Convention have taken specific legislative action to include SOEs and related concepts in their comparable anti-corruption legislation.”

Last week, as highlighted in this post, the Washington Legal Foundation and the Independence Institute joined to file an amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Amicus Brief Filed Urging The Supreme Court To Hear “Foreign Official” Challenge

Tuesday, September 16th, 2014

This previous post highlighted the petition for certiorari filed in the Supreme Court requesting the Court hear U.S. v. Esquenazi (the recent 11th Circuit decision of first impression in which the court concluded that certain state-owned or state-controlled enterprises  (SOEs) can be “instrumentalities” of a foreign government such that employees of SOEs can be “foreign officials” under the FCPA).

Last week, the Washington Legal Foundation and the Independence Institute joined to file this amicus brief in support of Petitioners as to Question 1 of the Petition (the “foreign official” issue).

Under the heading “Summary of Argument,” the brief states as follows.

“This case presents an issue of exceptional importance to the business community. Although the FCPA was adopted nearly 40 years ago, the statute has  been the subject of remarkably few court decisions. The result is that there is very little definitive guidance regarding the statute’s meaning that can assist businesses in avoiding criminal violations, yet they are urgently in need of such guidance in light of the significant increase in FCPA enforcement activity during the past decade.

The issue raised by this case—who are the “foreign officials” to whom the FCPA restricts payments?—is the single greatest source of confusion regarding the scope of the FCPA. Until the Eleventh Circuit ruled in this case, no federal appeals court had addressed that issue. Moreover, amici are unaware of any other cases in the appellate pipeline that raise the issue. The reason for the dearth of cases is readily apparent. Although federal prosecutors have initiated numerous FCPA proceedings in recent years, every large business entity against which a proceeding was initiated has entered into a settlement agreement. In light of the huge negative consequences that would befall any company that contested and lost an FCPA case, businesses are categorically unwilling to challenge in court government assertions that payments it made violated the FCPA. Given the absence of any case law, review is urgently needed to provide the business community with concrete guidance regarding the FCPA’s definition of a “foreign official” (and the subsidiary term “instrumentality”). In the absence of such guidance from this Court, businesses will have to navigate these unsettled waters with only the negligible guidance provided by the decision below—with very little likelihood that other appeals courts will weigh in any time soon. The Eleventh Circuit’s guidance is thin indeed; by stating explicitly that its list of relevant factors is non-exclusive, the appeals court leaves American businesses to guess at when a corporation whose controlling shareholder is a foreign government will be deemed an “instrumentality” of that government for FCPA purposes.

Review is also warranted because the court below has adopted a definition of “instrumentality” that is far broader than anything set forth in the FCPA. The Eleventh Circuit’s definition is inconsistent with the language of § 78dd-2(h)(2)(A) as well as the overall structure of the FCPA. In particular, because the word “instrumentality” appears in conjunction with the  words “department” and “agency,” the maxim noscitur a sociis (a word is known by the company it keeps) calls into doubt the Eleventh Circuit’s decision to include entities within the definition of “instrumentality” that bear little resemblance to the common understanding of a government “department” or “agency.”

The appeals court’s definition is also inconsistent with Congress’s and this Court’s use of the term “instrumentality” in other contexts. In particular, the Court has never used that term in conjunction with a corporation that was not created by the government itself and where the government merely acted in a manner consistent with its (temporary) role as a majority shareholder.

The appeals court’s decision is particularly problematic because it arises in a criminal law context in which an individual’s good-faith disagreement with a prosecutor’s interpretation of a statutory term can (and did here) result in imposition of a lengthy prison term.  The Eleventh Circuit conceded that the word “instrumentality” is capable of multiple meanings. It adopted an extremely broad definition of the term, and at the same time it heightened potential uncertainty by insisting that whether a particular entity is an “instrumentality” of a foreign government is a question of fact to be determined by the jury. Indeed, the universal response among defense lawyers was that the decision left the issue even more muddled than it had been previously. The U.S. Department of Justice has declined to exercise the full extent of its authority to provide safe-harbor guidance that would reduce the level of uncertainty. As a result, the competitiveness of American businesses in overseas markets suffers when companies refrain from engaging in legal activities out of a fear that they might expose themselves to FCPA liability. Review is warranted to resolve that constitutionally intolerable level of uncertainty.

The United States has waived its right to respond to the Petition, perhaps in an effort to signal to the Court that the issues raised are unimportant and thus that review should be denied. The United States cannot in good faith assert that the issues raised herein are not of paramount importance. The principal question raised by the Petition (who qualifies as a “foreign official” for purposes of FCPA payment restrictions?) is at issue in a significant number of the numerous recent FCPA investigations, yet this is the first occasion the question has reached the appellate level, and there is little likelihood that the question will again reach this Court in the foreseeable future. At the very least, the United States ought to be directed to file a response and  explain why it believes that the case is unworthy of the Court’s attention.”

 

“Foreign Official” Cert Petition Filed In Supreme Court

Friday, August 15th, 2014

As highlighted in this previous post, in May the 11th Circuit affirmed the FCPA (and related) convictions of Joel Esquenazi and Carlos Rodriguez.  Numerous previous posts have analyzed the 11th Circuit’s “foreign official” decision (see here for the key language of the decision; here for “foreign official” – the current landscape; here for a “foreign official roundup; here for the 193 different meanings of foreign official; and here for why the meaning of “foreign official” matters).

Perhaps most importantly, this previous post highlighted the 11th Circuit’s flawed reasoning.

Yesterday, Esquenazi and Rodriguez (through their counsel Markus Funk of Perkins Coie and David Simon of Foley & Lardner and others) filed this petition for certiorari in the Supreme Court.

The cert petition is believed to be the first substantive FCPA cert petition in FCPA history.  (As noted in this prior post, the Frederic Bourke FCPA enforcement action did result in a cert petition to the Supreme Court.  However, the issues presented were not FCPA specific. The Supreme Court denied cert.  Prior to Bourke’s cert petition, David Kay and Douglas Murphy filed a cert petition in the Supreme Court.  Again, the issues presented were not FCPA specific.  The Supreme Court denied cert.)  

The Supreme Court, which decides its own docket, has never substantively addressed any FCPA issue.

The petition states, in pertinent part, as follows.

“Few, if any, laws match the FCPA when it comes to the chasm between its profitability for the Government and the near-universal confusion concerning how far the statute actually reaches. The Eleventh Circuit’s ruling below only amplified the problem by providing a  purported “definition” of key FCPA provisions that differs from all provided previously and deepens the confusion over the term “foreign official.”

Under the heading, “Reasons for Granting the Petition” the petition states, in full, as follows.

The FCPA leaves open the pivotal question of who qualifies as a “foreign official” by not defining what “instrumentality [of a foreign government]” means.  Without a clear definition of “instrumentality,” the scope of the term “foreign official” cannot be understood. So it comes as no surprise that, though the statute was enacted in 1977, persistent questions about the correct interpretations of these terms have plagued it in this case and others.

Based on long-standing and straight-forward principles of statutory interpretation, Petitioners argued that instrumentalities should either be an actual part of the foreign government, or, at a bare minimum, perform core traditional governmental functions. The Government has lobbied for, and received from the Eleventh Circuit, an unacceptably broad interpretation of the term “instrumentality” that expands the reach of the statute to include partially state-owned or state-controlled enterprises that are not a part of any foreign  government, but whose employees could be considered “foreign officials” under the FCPA if they somehow fall into one or more of the court’s open-ended definitional options. Demonstrating the illogic of the Eleventh Circuit’s approach, consider that under its statutory construction, a janitor working for U.S. Government subsidized General Motors could qualify as a “foreign official” if General Motors were located overseas.

Prosecutorial discretion is one thing, but permitting the Government to take a “we-know-it-when-we-see it” approach to FCPA enforcement violates basic constitutional protections. In fact, the scope of the Government’s enforcement efforts have broadened to the point that even former Assistant Attorney General Breuer conceded the uncertainty—and the breadth of the Government’s interpretation—of who is a “foreign official” under the FCPA:

[C]onsider the possible range of ‘foreign officials’ who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country  will involve a ‘foreign official’ within the meaning of the FCPA.

The Government’s excessively broad (and now judicially sanctioned) interpretation of who is considered to be a “foreign official” stands in direct contrast to the stated purpose of the FCPA, namely, to prohibit payments to a “narrow recipient category of traditional government officials performing official or public functions.” Decl. of Professor Michael J. Koehler In Support of Defendants’ Motion to Dismiss Counts One Through Ten of the Indictment in United States v. Carson, No. 8:09-cr-00077, ¶ 16(b) (C.D. Cal. Feb. 21, 2011).

Recognizing this untenable state of affairs, there has been widespread commentary and concern about the Government’s pursuit of “an increasingly expansive view of what makes an enterprise an ‘instrumentality’ of a foreign government, and, therefore, what makes employees of such enterprises ‘foreign officials.’” [...]  Professor Koehler, for his part, has noted that no FCPA element “is more urgently in need of judicial scrutiny than the FCPA’s ‘foreign official’ element.” Michael J. Koehler, The Façade of FCPA Enforcement, 41 Geo. J. Int’l L. 907, 916 (2010).”

Elsewhere, the petition states, in pertinent part, as follows.

“In light of the Government’s recent increased enforcement action, and the span of time it has taken for just one federal appellate court to interpret this core statutory term, the time is now ripe for this Court to settle the meaning of instrumentality under the FCPA. This Court should not defer answering the question presented in this Petition until additional federal appellate courts reach conflicting decisions regarding whether state-owned enterprises are instrumentalities under the FCPA. By that time, the Government will have brought many more prosecutions or enforcement actions involving payments made, or benefits provided, to individuals who are not traditional government officials. Individuals and companies around the globe will be left to wonder whether the Government will unilaterally declare their conduct criminal. This Court should, therefore, settle the question of the meaning of “instrumentality” to clarify which of those enforcement actions Congress intended to sanction under the FCPA, and which it did not.

What is more, an acceptable answer to the definitional challenge lies near at hand. Congress is certainly capable of enacting language that applies to state-owned or state-controlled enterprises when it intends to do so. When Congress enacted the Foreign Sovereign Immunities Act (FSIA), for example, it specifically included within the definition of “agency or instrumentality of a foreign state” entities a “majority of whose shares or other ownership interest is owned by a foreign state or political subdivisions.” 28 U.S.C. § 1603(b). The presence of such an explicit definition in FSIA indicates that Congress knew how to include such language in the FCPA, but chose not to include it.

[...]

That absence is significant here and warrants construing “instrumentality” as excluding state-owned or state-controlled enterprises that are not political subdivisions and that do not perform core, traditional governmental functions. See Dole Food Co. v. Patrickson, 538 U.S. 468, 475-76 (2003) (contrasting the absence of language in FSIA with that used in other statutes and concluding that the absence of language was instructive). With regard to the FCPA, “[i]f Congress desires to go further . . . it must speak more clearly than it has.”

*****

A previously disclosed, I have provided pro bono expert services to pro bono defense counsel in this case.

Why The Meaning Of “Foreign Official” Matters

Thursday, July 24th, 2014

In the aftermath of the 11th Circuit’s recent “foreign official” decision, some appear perplexed why the meaning of “foreign official” even matters.

This commentator stated:

“If your are trying to figure out whether a company is a private company or an “instrumentality” of a foreign government under the Foreign Corrupt Practices Act you are already in trouble. To reach that point in the FCPA analysis you’ve already paid a bribe, or are thinking of paying a bribe. (If you’re just thinking about it; Don’t do it.) Otherwise you’ll end up in the position of Joel Esquenazi and Carlos Rodriguez.”

Such comments are not new.

For instance, as highlighted in this 2011 post in advance of the U.S. House’s June 2011 FCPA hearing, various civil society organizations asked – regarding calls for clarification of the “foreign official” element:  ”Greater certainty of what? Greater certainty of who [companies] are permitted to bribe and who they are not permitted to bribe.”

I respectfully submit that such comments (both then and now) are entirely off-base and not the main reason why the meaning of “foreign official” matters.

To be sure, the meaning of “foreign official” mattered to Esquenazi and Rodriguez in the narrow context of their case and more broadly for the obvious rule of law reasons implicated in criminal law enforcement.

Numerous previous posts have analyzed the 11th Circuit’s “foreign official” decision (see here for the first reporting of the decision; here for the key language of the decision; here for “foreign official” – the current landscape; here for a “foreign official roundup,  here for a perspective on the court’s flawed reasoning; and here for the 193 different meanings of foreign official).

This post highlights why “foreign official” matters to the entire business community.

For starters, to say that the meaning of “foreign official” matters only to those intent on engaging in bribery is like saying the drinking laws matter only to those intent on drunk driving.  Sure, the drinking laws can certainly capture those engaged in drunk driving, yet the reality is the underlying activity – drinking – is legal and socially acceptable in most other situations.

The same is true when it comes to the meaning of “foreign official.”

The FCPA’s anti-bribery provisions are, generally speaking, implicated when money or something of value is offered or provided to a “foreign official” in connection with a business purpose.  But guess what?  The underlying activity, offering or providing money or something of value in connection with a business purpose is legal and socially acceptable in most other situations.  In fact, in most circles it is called effective sales and marketing, wining and dining the customer, or maintaining good will.

The point is companies competing in good faith in the global marketplace can legally provide things of value to one category of person in connection with a business purpose, yet providing the same thing of value to a different category of person can be a crime.

In other words, the meaning of “foreign official” expands regulation of business interactions with a “well-defined group of persons” (as correctly noted by the 5th Circuit in U.S. v. Castle – see here) to an ill-defined, practically boundless category of persons as found by the 11th Circuit in Esquenazi.

How is a company supposed to know what category of person it can safely provide things of value to in connection with a business purpose and the category of person where providing things of value may be deemed a crime?  As highlighted in this prior post, it is difficult to comprehend how a business organization could legitimately find answers to many of the factors identified by the 11th Circuit as being relevant to the “instrumentality” analysis.

As even the 11th Circuit recognized:  it will be a “difficult task – involving divining subjective intentions of a foreign sovereign, parsing history, and interpreting significant amounts of foreign law – to decide what functions a foreign government considers core and traditional.”  Moreover, the 11th Circuit recognized ”there may be entities near the definitional line for ‘instrumentality’ that may raise a vagueness concern.”

At this point, I can hear certain readers screaming, come on, FCPA enforcement actions are about bribery, not providing mere things of value to “foreign officials.”  If that is your view of FCPA enforcement, then you are clearly not reading the actual enforcement agency resolution documents which frequently contain references to such things of value as handbags, tea sets, karaoke bars, flowers, and yes even cigarettes.

Again, the reason why “foreign official” matters is because providing such things of value to one category of person in connection with a business purpose is often perfectly acceptable and legitimate, yet providing such things of value to another category of person – as evidenced by FCPA enforcement actions – is labeled a crime by the enforcement agencies.

At this point, I can also hear certain readers saying, well, the Travel Act can cover providing such things of value to non-”foreign officials,” and regardless, the FCPA’s books and records and internal control provisions are implicated in connection with all expenditures by issuers.  If that is your position, I say please highlight any Travel Act enforcement action or non-FCPA, FCPA books and records and internal controls enforcement action  focused on karaoke bars, flowers and cigarettes.

One may be inclined to dismiss corporate concern about providing such inconsequential things of value to certain categories of persons as over-reaction and paranoia.  However, this reaction is understandable because of what the DOJ and SEC are choosing to include in FCPA enforcement action resolution documents and based on DOJ policy statements that the business community should look to resolution documents (including NPAs and DPAs) as evidence of what improper conduct is under the FCPA.

In short, the vast majority of companies competing in good faith in the global marketplace are struggling with the definition of “foreign official” not because they want to bribe anybody.  But rather because such companies are legitimately and legally providing things of value to customer x, but fearful that providing the same thing of value to customer y will be deemed a crime.

The resulting compliance reality is that risk averse companies are acting contrary to sensible enforcement agency guidance.  For instance, in the FCPA Guidance the DOJ/SEC warned about “devoting a disproportionate amount of time policing modest entertainment and gift-giving.”  Likewise, in the SEC’s most-extensive FCPA guidance, the agency cautioned companies that “thousands of dollars ordinarily should not be spent conserving hundreds.”

For the above reasons, the meaning of “foreign official” matters.