This previous guest post discussed “Korea’s FCPA” and a recent case in which a trial court held that the prosecution failed to meet its burden of proof that China Eastern Airlines was a state owned enterprise, and, therefore, that the president of China Eastern’s Korean subsidiary was a foreign public official sufficient to state a claim under the law.
An appeals court in Korea affirmed a lower court decision to reject a prosecution’s theory of what it means to be a “foreign official” under Korea’s version of the Foreign Corrupt Practices Act, called the Act on Preventing Bribery of Foreign Public Officials (“FBPA”). This was the first case brought by prosecutors under the FBPA with allegations that an executive of a state-controlled company was a “foreign official.” Prosecutors have appealed to the Korean Supreme Court, and the high court’s decision could be an important signal as to how aggressively prosecutors can pursue future cases under the FBPA.
In 2011, Korean prosecutors brought FBPA charges against two individuals – executives at a shipping company and a travel agency – for allegedly bribing the president of the Korean subsidiary of China Eastern Airlines to secure improper business advantages. Prosecutors argued that the Korean president of China Eastern Airlines was a “foreign official” and pointed to documents that allegedly linked the company to the Chinese government.
The lower court acknowledged the evidence suggesting a connection with the Chinese government, but found that prosecutors had not met their burden in proving that the China Eastern executive was a “foreign official” under the FBPA. The Korean prosecutors appealed and directed the appellate court to additional pieces of evidence to support its theory, including the facts that the Chinese government: (1) through a wholly-owned subsidiary, owned more than 50% of China Eastern’s capital; (2) had appointment and dismissal power over China Eastern’s CEO; (3) was in charge of certain business decisions of China Eastern, including mergers and spin-off decisions; and (4) provides China Eastern with large amounts of government subsidies.
Despite that evidence, the appellate court affirmed the lower court’s decision without further elaboration. The case has been appealed to the Korean Supreme Court. We will continue to monitor developments and provide an update once this decision has been announced.
The Korean FBPA defines “foreign official” to include employees of certain state-owned or state-controlled companies. Under Article 2(2)(c) of the FBPA, the term “foreign official” includes:
“[A]n executive or employee of a company in which a foreign government contributed more than 50% of the paid-in-capital or with respect to which a foreign government exercises de facto control over its overall management including major business decisions and the appointment or dismissal of its executives.”
Interestingly, at the same time the Korean Supreme Court wrestles with the limits of defining “foreign official” when it comes to state-owned or controlled companies, the U.S. Court of Appeals for the Eleventh Circuit is currently considering a similar issue in U.S. v. Esquenazi, a case that is slated for oral arguments in October.
Similar to the issue raised in this recent post concerning Canada’s FCPA-like law, Korea’s FBPA defines the targeted recipient category to include state-owned enterprise (“SOE”) definitions and concepts. As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.
As noted in this prior post regarding the DOJ’s response brief in the 11th Circuit challenge, among other arguments the DOJ is making is the alarmist argument that ”Defendants’ construction of the statute to exclude employees of SOEs … means that the United States is out of compliance with its treaty obligations under the [OECD] Convention.”
Like the U.S., Korea is also a member of the OECD Convention.
[Disclosure - I am providing pro bono expert services to defendants' counsel relevant to the "foreign official" issue].