Archive for the ‘Foreign Official’ Category

If Only The Supreme Court Had Accepted Cert In The “Foreign Official” Challenge

Wednesday, March 4th, 2015

If OnlyAs highlighted here, here and here, last Fall the Supreme Court had the opportunity to correct the 11th Circuit’s flawed interpretation of the important “foreign official” element of the FCPA’s anti-bribery provisions in U.S. v. Esquenazi.

As highlighted here, the Supreme Court declined the opportunity to hear the case.

If only the Supreme Court had accepted cert the likely outcome would have been similar to last week’s Supreme Court decision in Yates v. U.S. in which the court reversed the 11th Circuit’s flawed statutory interpretation of Sarbanes Oxley in the (in)famous are “fish” a “tangible object” case.

The issues addressed by the Supreme Court in Yates were very similar to the issues the Court was asked to address in Esquenazi.

Indeed, the 11th Circuit’s flawed interpretation in Esquenazi was even more egregious because, as highlighted in my amicus brief, (i) competing versions of the FCPA Congress considered yet rejected, specifically included state-owned or state-controlled enterprise (SOE) concepts; and (ii) laws passed both before the FCPA and after the FCPA contain the term “instrumentality” as well as SOE concepts.

Despite the compelling arguments made for cert in Esquenazi, the Foreign Corrupt Practices Act community was left pondering what if (and because of how the DOJ and SEC have chosen to enforce the FCPA will likely be asking what if for some time).

The what if was likely answered by the Court in Yates and the below post highlights excerpts from the majority opinion written by Justice Ginsburg.

“Mindful that in Sarbanes-Oxley, Congress trained its attention on corporate and accounting deception and cover-ups, we conclude that a matching construction of §1519 is in order: A tangible object captured by §1519, we hold, must be one used to record or preserve information.”

[...]

“On appeal, the Eleventh Circuit found the text of §1519“plain.” Because “tangible object” was “undefined” in the statute, the Court of Appeals gave the term its “ordinary or natural meaning,” i.e., its dictionary definition, “[h]aving or possessing physical form.”

[...]

In the Government’s view, §1519 extends beyond the principal evil motivating its passage. The words of §1519,the Government argues, support reading the provision as a general ban on the spoliation of evidence, covering all physical items that might be relevant to any matter under federal investigation.

Yates urges a contextual reading of §1519, tying “tangible object” to the surrounding words, the placement of the provision within the Sarbanes-Oxley Act, and related provisions enacted at the same time, in particular §1520 and §1512(c)(1). Section 1519, he maintains, targets not all manner of evidence, but records,documents, and tangible objects used to preserve them, e.g., computers, servers, and other media on which information is stored.

We agree with Yates and reject the Government’s unrestrained reading. “Tangible object” in §1519, we conclude, is better read to cover only objects one can use to record or preserve information, not all objects in the physical world.

[...]

The ordinary meaning of an “object” that is “tangible,”as stated in dictionary definitions, is “a discrete . . . thing,” Webster’s Third New International Dictionary 1555 (2002), that “possess[es] physical form,” Black’s Law Dictionary 1683 (10th ed. 2014). From this premise, the Government concludes that “tangible object,” as that term appears in §1519, covers the waterfront, including fish from the sea.

Whether a statutory term is unambiguous, however,does not turn solely on dictionary definitions of its component words. Rather, “[t]he plainness or ambiguity of statutory language is determined [not only] by reference to the language itself, [but as well by] the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U. S. 337, 341 (1997). See also Deal v. United States, 508 U. S. 129, 132 (1993) (it is a “fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used”). Ordinarily, a word’s usage accords with its dictionary definition. In law as in life, however, the same words, placed in different contexts, sometimes mean different things.

[...]

In short, although dictionary definitions of the words “tangible” and “object” bear consideration, they are not dispositive of the meaning of “tangible object” in §1519.

[...]

The legislative history reveals that §1512(c)(1) was drafted and proposed after §1519. See 148 Cong. Rec. 12518, 13088–13089 (2002). The Government argues, and Yates does not dispute, that §1512(c)(1)’s reference to “other object” includes any and every physical object. But if §1519’s reference to “tangible object” already included all physical objects, as the Government and the dissent contend, then Congress had no reason to enact §1512(c)(1): Virtually any act that would violate §1512(c)(1) no doubt would violate §1519 as well, for §1519 applies to “the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter,” not just to “an official proceeding.”5

The Government acknowledges that, under its reading,§1519 and §1512(c)(1) “significantly overlap.” Brief for United States. Nowhere does the Government explain what independent function §1512(c)(1) would serve if the Government is right about the sweeping scope of §1519. We resist a reading of §1519 that would render superfluous an entire provision passed in proximity as part of the same Act.6 See Marx v. General Revenue Corp., 568 U. S. ___, ___ (2013) (slip op., at 14) (“[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme.”).

[...]

Had Congress intended “tangible object” in §1519 to be interpreted so generically as to capture physical objects as dissimilar as documents and fish, Congress would have had no reason to refer specifically to “record”or “document.” The Government’s unbounded reading of“tangible object” would render those words misleading surplusage.

Having used traditional tools of statutory interpretation to examine markers of congressional intent within the Sarbanes-Oxley Act and §1519 itself, we are persuaded that an aggressive interpretation of “tangible object” must be rejected. It is highly improbable that Congress would have buried a general spoliation statute covering objects of any and every kind in a provision targeting fraud in financial record-keeping.

[...]

Finally, if our recourse to traditional tools of statutory construction leaves any doubt about the meaning of “tangible object,” as that term is used in §1519, we would invoke the rule that “ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.” Cleveland v. United States, 531 U. S. 12, 25 (2000) (quoting Rewis v. United States, 401 U. S. 808, 812 (1971)).That interpretative principle is relevant here, where the Government urges a reading of §1519 that exposes individuals to 20-year prison sentences for tampering with any physical object that might have evidentiary value in any federal investigation into any offense, no matter whether the investigation is pending or merely contemplated, or whether the offense subject to investigation is criminal or civil. See Liparota v. United States, 471 U. S. 419, 427 (1985) (“Application of the rule of lenity ensures that criminal statutes will provide fair warning concerning conduct rendered illegal and strikes the appropriate balance between the legislature, the prosecutor, and the court in defining criminal liability.”). In determining the meaning of “tangible object” in §1519, “it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.” See Cleveland, 531 U. S., at 25 (quoting United States v. Universal C. I. T. Credit Corp., 344 U. S. 218, 222 (1952)). See also Jones v. United States, 529 U. S. 848, 858–859 (2000) (rule of lenity “reinforces” the conclusion that arson of an owner-occupied residence is not subject to federal prosecution under 18 U. S. C. §844(i) because such a residence does not qualify as property “used in” commerce or commerce-affecting activity).

For the reasons stated, we resist reading §1519 expansively to create a coverall spoliation of evidence statute, advisable as such a measure might be. Leaving that important decision to Congress, we hold that a “tangible object” within §1519’s compass is one used to record or preserve information. The judgment of the U. S. Court of Appeals for the Eleventh Circuit is therefore reversed, and the case is remanded for further proceedings.”

Is The Current “Foreign Official” Enforcement Theory Unconstitutional?

Wednesday, February 18th, 2015

UnconstitutionalAs readers no doubt know, in May 2014 the 11th Circuit issued a decision of first impression for an appellate court on the issue of whether employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA.

This prior post contains numerous links to other posts regarding the decision.

In short, in U.S. v. Esquenazi, the 11th Circuit concluded as follows.

“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. [...] [W]e do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.

To decide if the government ‘controls’ an entity, courts and juries should look to the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.

[...]

We then turn to the second element relevant to deciding if an entity is an instrumentality of a foreign government under the FCPA — deciding if the entity performs a function the government treats as its own. Courts and juries should examine whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

As evident from the 11th Circuit’s ruling, a key element of a U.S. federal law will often be dependent on foreign law or foreign government circumstances or characterization of an alleged SOE.

Indeed, as noted in this prior post, the meaning of foreign official thus can have 193 meanings (by most measures, the number of countries in the world).  As noted in the prior post, a significant irony of the 11th Circuit’s resort to foreign characterization and treatment of a seemingly commercial enterprise is that the DOJ itself has rejected this approach in issuing opinions under the FCPA Opinion Procedure program. (See Release 94-01).

The 11th Circuit itself recognized that its control and function test could raise constitutional vagueness concerns.  As stated by the court, it can 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.”

The above is relevant background in discussing a recent article – outside the FCPA context – but with clear FCPA implications given the above background.

In “The Dynamic Incorporation of Foreign Law and the Constitutional Regulation of Federal Lawmaking,” Paul Larkin argues that “the prospect that the United States would grant a foreign government the legal authority to govern the people of this nation is absurd.”  Stated differently, Larkin notes:

“Congress’s decision to authorize foreign government and foreign officials to define the content of a domestic law raises legal issues residing at the core of any analysis of how the federal government may govern [...]“

According to Larkin, such circumstances are unconstitutional “because it vests domestic federal lawmaking in foreign governments and their officials.”

Larkin then discusses several “problems posed by vesting absolute lawmaking power to define federal criminal law in the hands of foreign officials who may be used to governing in a foreign system for people who may live in a culture with vastly different legal and social expectations.”

Among the problems are the following:

“It is wholly unrealistic to assume that Americans know foreign law.  Foreign codes may not always reflect American law or morals, so there is no justification for presuming that domestic residents will know foreign laws by heart.”

“Finding foreign law may also be difficult.  Foreign nations may not make all of their laws public, whether in printed code accessible in a domestic library or via the Internet.”

“Other nations may grant their departments similar rulemaking power [to U.S. agencies] but their agencies may not publish regulations in their version of the Federal Register or Code of Federal Regulations (assuming that they have one at all).”

“A foreign law must be identifiable as a ‘law.’  Yet, foreign nations may define their ‘law’ to embrace edicts with no parallel or counterpart in our legal system.”

Larkin’s article raises interesting parallel issues concerning the current “foreign official” enforcement theory.

Moreover, the issues raised in Larkin’s article are not merely hypothetical in the FCPA context.  As noted in this prior post, several of the issues Larkin identified were disputed in the SEC’s failed case against Mark Jackson and James Ruehlen regarding Nigerian law relevant to temporary importation permits.

11th Circuit Discusses “Routine Governmental Action” Prong Of The FCPA’s Facilitation Payments Exception

Wednesday, February 11th, 2015

11th Cir.This February 2013 post highlighted the criminal appeal of Jean Rene Duperval, the alleged “foreign official” at the center of the various Haiti Teleco enforcement actions, including U.S. v. Esquenazi, the recent 11th Circuit decision concerning the “foreign official” element.

In connection with the Haiti Teleco cases, Duperval was found guilty by a jury on various money laundering charges. As highlighted in the prior post, Duperval appealed his conviction to the 11th Circuit and among the issues appealed were:

  • whether the evidence was “insufficient to prove beyond a reasonable doubt that Haiti Teleco was a government instrumentality and that Duperval was a foreign official as required to prove that a violation of the Foreign Corrupt Practices Act generated proceeds of a specified unlawful activity – a necessary predicate for the convictions on the money laundering conspiracy and substantive money laundering charges.”
  • various due process challenges concerning the declaration of the Haitian Prime Minister; and
  • whether the “trial court erred in not charging the jury in accordance with Duperval’s proffered theory of defense instruction” as to whether the FCPA’s facilitation payments exception applied.

Earlier this week, the 11th Circuit issues this opinion.  The opinion begins as follows.

“This appeal of criminal convictions involving money laundering and foreign bribery presents issues of exposure of jurors to publicity; the sufficiency of the evidence that a telephone company was an “instrumentality” of a foreign government, 15 U.S.C. § 78dd-2(h)(2)(A); whether the administration of a multimillion dollar contract is “routine governmental action,” id. § 78dd-2(h)(4)(A); whether the government interfered with a witness when it obtained a clarifying declaration from that witness; and four issues about the application of the United States Sentencing Guidelines. Jean Rene Duperval appeals both his convictions of two counts of conspiring to commit money laundering, 18 U.S.C. § 1956(h), and 19 counts of concealment of money laundering, id. § 1956(a)(1)(B)(i), and his sentence of imprisonment of 108 months followed by three years of supervised release. Duperval worked as the Director of International Affairs at Telecommunications D’Haiti, a company owned by the government of Haiti. Duperval participated in two schemes in which international companies gave him bribes in exchange for favors from Teleco. Duperval’s arguments fail. We affirm.”

As relevant to “foreign official,” the 11th Circuit’s discussion of this issue in Duperval mirrors the 11th Circuit’s conclusion in U.S. v. Esquenazi.  In short, in Duperval the court stated: “[i]n Esquenazi and this appeal, the government introduced almost identical evidence about Teleco. [...] As in Esquenazi, the jury could have reasonably found that Teleco was an instrumentality of Haiti.”

As relevant to the “routine government action” portion of the facilitation payments exception, the 11th Circuit stated:

“Duperval admitted that he received money from Cinergy and Terra, but he asserted that the money was for doing a good job in the administration of the contracts. Duperval’s counsel requested a jury instruction based on an exception to the Act for routine governmental action, id. § 78dd-2(b), but the district court denied this request.”

[...]

“Duperval argues that the district court erred when it refused his proffered jury instruction. Duperval requested that the district court instruct the jury on the exception to the Foreign Corrupt Practices Act for routine governmental action, 15 U.S.C. § 78dd-2(b). Duperval argues that he was entitled to an instruction on this defense because he introduced evidence that he was paid only for administering the contracts within their terms. But we conclude that the district court did not err when it refused Duperval’s instruction.

A defendant has the right to have the jury instructed on a theory of defense only if “the proposed instruction presents a valid defense and [if] there has been some evidence adduced at trial relevant to that defense.” United States v. Ruiz, 59 F.3d 1151, 1154 (11th Cir. 1995). When we review the refusal to give an instruction for abuse of discretion, we ask whether “the requested instruction is correct, not adequately covered by the charge given, and involves a point so important that failure to give the instruction seriously impaired the party’s ability to present an effective case.” Svete, 556 F.3d at 1161 (internal quotation marks omitted). But we need not engage in this inquiry if the defendant failed to introduce evidence relevant to the jury instruction.

The Act allows “any facilitating or expediting payment to a foreign official . . . the purpose of which is to expedite or to secure the performance of a routine governmental action.” 15 U.S.C. § 78dd-2(b). Routine governmental action includes actions such as “obtaining permits . . . to do business[;] . . . processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery, or scheduling inspections[; and] . . . providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products.” Id. § 78dd-2(h)(4)(A). Other actions are routine governmental action only if they are “actions of a similar nature” to those listed in the statute. Id. § 78dd-2(h)(4)(A)(v). But routine governmental action “does not include . . . any action taken by a foreign official involved in the decision-making process to encourage a decision to award new business to or continue business with a particular party.” Id. § 78dd-2(h)(4)(B).

Duperval argues that he performed a routine governmental action when he administered the contracts, but he misunderstands this exception to the Act. As the Fifth Circuit explained, “[a] brief review of the types of routine governmental actions enumerated by Congress shows how limited Congress wanted to make the . . . exception[].” United States v. Kay, 359 F.3d 738, 750 (5th Cir. 2004). These actions are “largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries,” id. at 751, and the payments allowed under this exception are “grease payments” to expedite the receipt of routine services, id. at 747. The administration of a multi-million dollar telecommunication contract is not an “action[] of a similar nature” to the actions enumerated in the Act. 15 U.S.C. § 78dd-2(h)(4)(A)(v). Duperval was not a low-level employee who provided a routine service; he was a high ranking official who administered international contracts. And, when Terra and Cinergy paid Duperval, their “grease payment” was not to expedite the receipt of a routine service. Duperval was not “providing phone service” as the Act uses that term, id. § 78dd-2(h)(4)(A)(iv). “[P]hone service” appears along with “providing . . . power and water supply, loading and unloading cargo, or protecting perishable products.” Id. The text of the statute refers to the government providing a service to a person or business, not to the government administering contracts with companies that provide telephone service.

Duperval’s interpretation also is in tension with the section of the Act that describes what is not routine governmental action, id. § 78dd-2(h)(4)(B). A party cannot pay a decision-maker to continue a contract with the government, id., but under Duperval’s interpretation, a party could circumvent this limitation by “rewarding” the decision-maker for doing a good job in administering the current contract. This interpretation, which would provide an end-run around the provisions of the Act, finds no support in the text of the Act. Duperval presented evidence that he administered multi-million dollar contracts. He failed to prove that he performed a routine governmental action. Without any evidence to support his defense, Duperval was not entitled to his requested jury instruction.”

The 11th Circuit’s conclusion as to “routine governmental action,” was hardly surprising given the facts at issue in Duperval and Duperval’s argument.

Nevertheless, the 11th Circuit’s discussion of facilitation payments in Duperval is believed to be the first time an appellate court has squarely  addressed this prong of the FCPA (as the Fifth Circuit’s discussion of facilitation payments in Kay was dicta).

Friday Roundup

Friday, January 16th, 2015

Roundup2Hollywood film studios, more FBI agents, asset recovery, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Hollywood Film Studios

A recent Wall Street Journal article went in-depth regarding the FCPA scrutiny of Hollywood film studios doing business in China. According to the article, Sony received a subpoena from the SEC in June 2013 regarding possible violations of the U.S. Foreign Corrupt Practices Act.  The article states:

“The SEC’s questions to Sony dealt primarily with potential bribery related to the release of “Resident Evil: Afterlife” in China in 2010, according to email communication between Sony’s in-house and outside legal counsel. A Sony-led investigation that followed the SEC subpoena examined the company’s distribution efforts more broadly, the emails show. The subpoena indicates an escalation of an inquiry that began in 2012 when the SEC requested that every major studio voluntarily provide information about their movie-distribution practices in China, a request that was publicly reported at the time. However the SEC’s specific concerns weren’t disclosed nor was it previously known that the agency had stepped up its probe with a subpoena. Sony documents show that the SEC refers to its probe as “In the Matter of Lions Gate Entertainment Corp,” indicating that the rival Hollywood studio behind “The Hunger Games” has been asked questions as well.”

Many FCPA enforcement actions have, as a root cause, a foreign trade barrier or distortion.  This appears to be true in the case of the Hollywood film studios.  As stated in the article, the companies ran into “China’s quota and censorship systems to secure distribution for their films in that country.”  According to the article:

“Hollywood studios are barred from distributing films on their own in China, but instead work with the state-owned China Film Group to secure one of the 34 highly coveted spots offered each year for imported movies. [Third party distribution firms] help studios navigate the bureaucracy.”

More FBI Agents

The Wall Street Journal reports:

“The Federal Bureau of Investigation’s foreign corruption program will more than triple the number of agents focused on overseas bribery this year to more than 30 from around 10, according to bureau officials. The agents will focus on both sides of corruption, hunting down executives that pay off foreign officials, while also helping other nations recoup funds stolen by corrupt leaders. The FBI usually can’t directly arrest corrupt foreign leaders, but at the request of foreign law enforcement the bureau can help locate funds stolen by kleptocrats. [...]  “With the growing global economy and the growing nature of international commerce with globalization of more companies and economies, it’s creating more opportunities for the potential of FCPA and corruption,” said Joseph Campbell, assistant director of the bureau’s criminal division, in an interview. The newly assigned agents will work out of field offices in New York, Washington, D.C., San Francisco, Los Angeles, Miami and Boston, with backup from forensic analysts and other specialists in headquarters, which is also located in the capital. Currently, the bureau’s foreign anti-corruption field agents are managed out of a field office in Washington, D.C. and split their time while pursuing other white collar crimes, bureau officials said.”

Asset Recovery

As part of its Kleptocracy Asset Recovery Initiative, the DOJ recently announced the filing of a “civil forfeiture complaint seeking the forfeiture of nine properties worth approximately $1,528,000 that were allegedly purchased with funds traceable to a $2 million bribe paid by a Honduran information-technology company to the former Executive Director of the Honduran Institute of Social Security.”

According to the DOJ:

“From 2010 to 2014, Dr. Mario Roberto Zelaya Rojas, 46, of Tegucigalpa, Honduras, served as the Executive Director of the Honduran Institute of Social Security (HISS), a Honduran Government agency that provides social security services, including workers’ compensation, retirement, maternity, and death benefits.  According to allegations in the forfeiture complaint, Zelaya solicited and accepted $2.08 million in bribes from Compania De Servicios Multiples, S. de R. L. (COSEM) in exchange for prioritizing and expediting payments owed to COSEM under a $19 million contract with HISS.  Zelaya also allegedly instructed COSEM to make bribe payments to two members of the Board of Directors of HISS charged with overseeing the COSEM contract.  To conceal the illicit payments, COSEM allegedly sent the bribes through its affiliate company, CA Technologies.  As further alleged in the complaint, the bribe proceeds were then laundered into the United States and used by Zelaya and his brother, Carlos Alberto Zelaya Rojas, to acquire real estate in the New Orleans area.  Certain properties were titled in the name of companies nominally controlled by Zelaya’s brother in an effort to conceal the illicit source of the funds as well as the beneficial owner.  The current action seeks forfeiture of nine properties acquired with the proceeds of Zelaya’s alleged bribery scheme.”

In the DOJ’s release, Assistant Attorney General Leslie Caldwell stated:

“Our action today highlights how the Criminal Division’s Kleptocracy Initiative, with our network of law enforcement partners around the globe, will trace and recover the ill-gotten gains of corrupt officials.  Criminals should make no mistake:  the United States is not a safe haven for the proceeds of your crimes.  If you hide or invest your stolen money here, we will use all the legal tools we have to find it and seize it.”

Quotable

In this Global Investigations Review article, Timothy Dickinson (Paul Hastings and a veteran of the FCPA bar) states:

“Ten years ago, I would have been happy to bet anyone a doughnut that I could accurately define what a foreign official is. Now, with various court definitions and a lack of clarity from the DoJ, I fear I might actually lose my doughnut.”

In this piece about the SEC’s internal controls enforcement theories, Michael Shepard (Hogan Lovells) states:

“Beneath the surface of these developments [the increased use of the internal controls provisions] is a disconnect about what the internal controls provisions actually require. The government — and especially the SEC — has settled on an interpretation of the internal controls provision that is at odds with the understanding of many in-house finance professionals about what internal controls are intended to address. Ask corporate finance professionals about internal controls at their companies and you will likely get an answer about processes designed to protect the company’s assets at a level that would materially impact the company’s financial statements. Ask your friendly neighborhood SEC investigator about internal controls and you will instead get inquiries about the exponentially smaller level of amounts of money that would be enough to influence a low-paid public official in a poor third-world country. Not only is the SEC looking at controls on a more microscopic level, but its predilection to pursue internal controls charges sometimes seems based on an interpretation of the FCPA that borders on strict liability. Circumstantial evidence of a bribery violation — such as evidence that some money may have left the company without proper authorization or accounting records — translates for the SEC into proof that the company’s controls were inadequate. Statutory elements of reasonableness and scienter get short shrift in a world in which the SEC aggressively pushes internal controls charges, and the vast majority of companies remain predisposed to settle.”

Reading Stack

Paul Barrett at Bloomberg BusinessWeek goes in-depth about the FCPA charges pending against Joseph Sigelman in an article titled “Does This Man Look Like a Felon to You?”

From the New Yorker, “Can Corruption Be Erradicated?”

“[C]orruption has always permeated so many fields of human endeavor that it may be not a corruption of anything—but, rather, a regrettable feature of our natural condition. Accountable government is an ideal, to be sure. It may also be an aberration.”

[O]ur conceptual vocabulary for understanding [corruption], let alone combatting it, remains conspicuously meagre. The very term “corruption” is so inclusive as to be almost meaningless, encompassing bribery, nepotism, bid-rigging, embezzlement, extortion, vote-buying, price-fixing, protection rackets, and a hundred other varieties of fraud.”

From Bloomberg BNA “As FCPA Complexity Increase, Corporate Interest in Self-Disclosure Wanes.”

*****

A good weekend to all.

The “Foreign Officials” Of 2014

Wednesday, January 14th, 2015

foreign official2A “foreign official.”

Without one, there can be no FCPA anti-bribery violation (civil or criminal).  Who were the alleged “foreign officials” of 2014?

This post, describes the alleged “foreign officials” from 2014 corporate DOJ and SEC FCPA enforcement actions.

There were 10 core corporate enforcement actions in 2014.  Of the 10 enforcement actions, 6 (60%) involved, in whole or in part, employees of alleged state-owned or state-controlled entities (“SOEs”).  These entities ranged from power and electric companies, hospitals and labs, an oil and gas company, and an aluminium smelter.

By way of comparison, in 2013, 55% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here). In 2012, 42% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 348-353).  In 2011, 81% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 29-41).  In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119).  In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44).

In 2014, in an issue of first impression for an appellate court, the 11th Circuit set forth a control and function test for whether an alleged SOE can be “instrumentality” under the FCPA such that its employees are “foreign officials” under the FCPA.  As highlighted here and more extensively in my Supreme Court amicus brief supporting the cert petition, there were many flaws in the 11th Circuit’s reasoning.  The Supreme Court declined to hear the case.  As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration.

The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2014.  As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.

[Note:  certain of the enforcement actions below technically only involved FCPA books and records and internal control charges.  As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues.  Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the "foreign officials" involved.]

Alstom Entities

DOJ

Individuals associated with Indonesia’s alleged state-owned and state-controlled electricity company, Perusahaan Listrik Negara (“PLN”).  The alleged “foreign officials” are described as follows.

“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”

Individuals associated with Saudi Electric Company (“SEC”), Saudi Arabia’s alleged state-owned and state-controlled electricity company.

Individuals assocaited with the Egyptian Electricity Holding Company, the alleged state-owned and state-controlled electricity company in Egypt. Individuals associated with the Egyptian Electricity Transmission Company, the alleged state-owned and state-controlled electricity transmission company. Asem Elgawhart (an employee of Bechtel Corporation a U.S. company) who was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and the Egyptian Electricity Holding Company.

Individuals associated with the Bahamas Electricity Corporation, the alleged state-owned and state-controlled power company.

Individuals associated with Taipei’s Department of Rapid Transit System.

Avon Entities

DOJ

Government officials in China including officials from the Guandong Food and Drug Administration.

SEC

Same as above.

Various Chinese government officials, including government officials responsible for awarding a test license, and subsequently a direct sales business license, that would allow a company to utilize direct door-to-door selling in China. Certain of the Chinese “foreign officials” are alleged to be individuals associated with the Ministry of Commerce and the State Administration for Industry and Commerce.

Dallas Airmotive

DOJ

Official 1 (a Sub-Officer in the Brazilian Air Force – BAF), Official 2 (a Sergeant in the BAF), Official 3 (a Captain for the Governor of the Brazilian state of Roraima).

Officials of the Peruvian Air Force and the office of the Governor of the Argentinean State of San Juan.

Bio-Rad

DOJ

Individuals associated with government customers in Russia, including the Russian Ministry of Health

SEC

Same as above.

Officials at government-owned hospitals and laboratories in Vietnam.

Government officials in Thailand.

Bruker

SEC

Individuals employed by state owned entities (“SOEs”) in China.

Layne Christensen

SEC

Tax officials in Mali, Guinea, and the Democratic Republic of the Congo.

Customs officials in Burkina Faso and the Democratic Republic of Congo.

Police, border patrol, immigration officials, and labor inspectors in Burkina Faso, Guinea, Tanzania, and the Democratic Republic of Congo.

Smith & Wesson

SEC

Pakistani police officials.

Indonesian police officials.

Attempts to make improper payments to Turkish police and Turkish military officials, as well as foreign officials in Nepal and Bangladesh.

HP Entities

DOJ

Individuals associated with the Russian Office of the Prosecutor General of Russia (“GPO” or “GP”).  As alleged, the Russian government used a state-owned entity organized under the Department of Affairs of the President of the Russian Federation, to manage the GPO project tender and execution. “Russian Official A,” a director of a Russian government agency who assumed responsibility for the GPO Project as well as “Individual A,” an associate of Russian Official A.

A Polish Official (the Director of Information and Communications Technology within the Polish National Police Agency (“KGP”) which was part of the Polish Ministry of the Interior and Administration.

Individuals associated with Pemex, Mexico’s alleged state-owned petroleum company.  Official A is described as Pemex’s Chief Operating Officer and Official B is described as Pemex’s Chief Information Officer.

SEC

Same as above.

Marubeni

DOJ

Individuals associated with Indonesia’s alleged state-owned and state-controlled electricity company, Perusahaan Listrik Negara (“PLN”).  The alleged “foreign officials” are described as follows.

“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”

Alcoa

DOJ

Individuals associated with Aluminium Bahrain B.S.C. (Alba), an aluminium smelter operating in Bahrain.  Alba is described as follows.

“The state holding company of the Kingdom of Bahrain, the Mumtalakat, which was controlled by the Ministry of Finance, held 77% of the shares of Alba.  The Saudi Basic Industries Corp. (SABIC), which was majority-owned and controlled by the government of the Kingdom of Saudi Arabia, held a 20 percent minority stake in Alba, and three percent of Alba’s shares were held by a German investment group.  The majority of profits earned by Alba belonged to the Mumtalakat, through part of the profit was permitted to be used by Alba for its operations.  The Ministry of Finance had to approve any change in Alba’s capital structure and had to be consulted on any major capital projects or contracts material to Alba’s operations.  Members of the Royal Family of Bahrain and representatives of the government sat on the Board of Directors of Alba, controlled its board, and had primary authority in selecting its chief executive and chief financial officer.”

The alleged “foreign officials” are described as follows.

“Official A was a member of Bahrain’s Royal Family and served as a member of the board of directors of Alba from 1982 to 1997.  From 1988 to 1990, Official A was also a member of Alba’s tender committee, which was responsible in part for awarding major contracts to Alba’s suppliers, such as Alcoa entities supplying alumina to Alba.”

“Official B served on Alba’s board from at least 1986 to 2000 as a representative of SABIC.  From 1988 to 1990, Official B also served on Alba’s tender committee with Official A.”

“Official C was a senior member of Bahrain’s Royal Family, a senior government official of Bahrain from at least 1995 to 2005, and served as a high-ranking officer of Alba from 1995 to 2005.  As a high-ranking officer of Alba, Official C was extremely influential over the assignment of contracts to Alba’s suppliers.  Official C relied on Consultant A to assist him in opening international bank accounts using various aliases or shell entities for the purpose of receiving corrupt funds from kickbacks from Alba’s suppliers.”

“Official D was a senior member of Bahrain’s Royal Family and a senior government official of Bahrain for many decades.  Official C was a close associate of Official D.  Official D’s office was required to be consulted before Alba could commit to a long term alumina supply contract with Alcoa.”

SEC

Same as above.