Archive for the ‘Opinion Procedure Release’ Category

Congress Remains Interested In FCPA Issues

Wednesday, February 26th, 2014

Foreign Corrupt Practices reform may not be the hot issue it was circa 2011 (political posturing by the DOJ in connection with the FCPA Guidance as well as certain headlines caused the issue to simmer), but Congress remains interested in FCPA issues.

For instance, in connection with a recent confirmation hearing for Leslie Caldwell to be the DOJ’s Assistant Attorney General of the Criminal Division, Senator Charles Grassley (R-IA), Ranking Member of the Senate Judiciary Committee, asked Caldwell several FCPA-related questions for the record.

Caldwell punted on every question (perhaps not surprising given that Caldwell is not currently at the DOJ), but the questions posed nevertheless highlight specific FCPA issues on the minds of certain members of Congress.

Set forth in full below are the FCPA-related questions by Senator Grassley and Caldwell’s responses.

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“I recently asked Attorney General Holder these questions and have not yet received response.  As the FCPA falls within the Criminal Division, would you please respond to the following questions.

What are the Department’s current enforcement priorities under the FCPA?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What particular industries, markets or practices is the Department focusing on, and why?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  As noted above, if I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases under the FCPA.

What proportion of the Department’s enforcement activity during 2013 involved non-U.S. companies?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.  If I am confirmed as the Assistant Attorney General of the Criminal Division, I assure you that I will be vigilant in pursuing cases against U.S. and non-U.S. companies that violate the FCPA.

Has the Department seen a recent increase in whistleblower claims of FCPA violations?  If so, to what would you attribute that?  How has the Department responded?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.

Although the Department does not publicize each particular instance in which it declines prosecution despite evidence of an FCPA violation, what characterized the Department’s declinations during 2013?  Did the number increase from 2012?  What factors were most important in leading the Department to decline prosecution?

Answer:  I am not in the Department; therefore, I am not in a position to address these questions.  While I have not been privy to the internal deliberations surrounding the Department’s declination decisions, if confirmed as the Assistant Attorney General of the Criminal Division, I assure you that declination decisions will be based on the law and the evidence presented.

In November 2012, the Department and SEC issued the FCPA ”Resource Guide,” which reflected guidance from your agencies regarding the interpretation and enforcement of the FCPA.  Does the Department anticipate updating, supplementing or amending the “Resource Guide” in the foreseeable future?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

In 2013, the Department issued only one Opinion Release concerning the FCPA.  Does the Department consider the “Resource Guide” a substitute for its opinion release program?

Answer:  I am not in the Department; therefore, I am not in a position to address this question.

Law Firm Partner Cleared To Pay Medical Expenses For Foreign Official’s Daughter

Thursday, December 26th, 2013

The DOJ recently released this Foreign Corrupt Practices Act Opinion Procedure Release dated December 19th.

Fitting of the holiday season, the DOJ concluded that being a nice person does not equal being a criminal.

As stated in Release 13-01, the “Relevant Facts and Circumstances” are as follows.

“Requestor is a partner with a U.S. law firm (the “Law Firm”). Requestor and other attorneys with the Law Firm have represented Foreign Country A in various international arbitrations. Requestor presently represents Foreign Country A in two international arbitrations for which the Law Firm receives payment. In the past 18 months, the Law Firm has billed fees to Foreign Country A of over $2 million, and Requestor anticipates that in 2014, the fees on matters for Foreign Country A will exceed $2 million.

Over the past several years of these representations, Requestor has become a personal friend of Foreign Official, who works in Foreign Country A’s Office of the Attorney General (the “OAG”). The OAG is responsible for selecting and contracting with international counsel on behalf of Foreign Country A. According to Requestor, however, Foreign Official has not had and will not have in the future any role in the selection of Requestor or the Law Firm as counsel for Foreign Country A. Requestor is not the Law Firm’s “primary relationship attorney,” “originating attorney,” or “lead attorney” for the OAG or the government of Foreign Country A, but has participated in the selection or pitch processes for new business with OAG and/or the government of Foreign Country A, and would expect to do so with regard to future business from these clients.

Requestor proposes to pay the medical expenses of Foreign Official’s daughter, who suffers from a severe medical condition that cannot effectively be treated in Foreign Country A or anywhere in the region. The physicians treating Foreign Official’s daughter have recommended that she receive inpatient care at a specialized facility located in Foreign Country B. Requestor reports that the treatment will cost between approximately $13,500 and $20,500 and that Foreign Official lacks financial means to pay for this treatment for his daughter.

In addition to the above representations, Requestor has further represented that among other things:

•  Requestor’s intention in paying for the medical treatment of Foreign Official’s daughter is purely humanitarian, with no intent to influence the decision of any foreign official in Foreign Country A with regard to engaging the services of the Law Firm, Requestor, or any third person.

• The funds used to pay for the medical treatment will be Requestor’s own personal funds. Requestor will neither seek nor receive reimbursement from the Law Firm for such payments.

• Requestor will make all payments directly to the facility where Foreign Official’s daughter will receive treatment in Foreign Country B. Foreign Official will pay for the costs of his daughter’s related travel.

• Foreign Country A is expected to retain the Law Firm to work on one new matter in the near future.  Requestor is presently unaware of any additional, potential matters as to which Foreign Country A might retain the Law Firm. However, if such a matter develops, Requestor anticipates that Foreign Country A would likely retain the Law Firm given its successful track record and their strong relationship.

• Under the law for Foreign Country A, any government agency such as OAG that hires an outside law firm must publicly publish a reasoned decision justifying the engagement. It is a crime punishable by imprisonment under the penal code of Foreign Country A for any civil servant or public employee to engage in corrupt behavior in connection with public contracting.

In addition, Foreign Official and Requestor have discussed this matter transparently with their respective employers. The government of Foreign Country A and the leadership of the Law Firm have expressly indicated that they have no objection to the proposed payment of medical expenses. Indeed, Requestor has provided a certified letter from the Attorney General of Foreign Country A that represents the following:

• The decision by Requestor to pay for or not to pay for this medical treatment will have no impact on any current or future decisions of the OAG in deciding on the hiring of international legal counsel.

• In the opinion of the Attorney General, the payment of medical expenses for Foreign Official’s daughter under these circumstances would not violate any provision of the laws of Foreign Country A.

The Attorney General further confirms that while Foreign Official handles aspects of the cases on which the Law Firm and Requestor work, Foreign Official has not taken part in any decisions regarding the Firm’s retention for any matter, nor would Foreign Official have such a role in any possible future decision regarding contracting outside counsel, as such decisions are outside of Foreign Official’s responsibilities.

Finally, Foreign Official has represented and warranted in writing that he has not had, does not have, and will not have any influence in the contracting of international lawyers to represent Foreign Country A; he will not attempt to assist Requestor or the Law Firm in the award of future work; and he would not get involved in any decision that the OAG might make in the future in this regard.

Based on the above facts and circumstances, the DOJ set forth, in pertinent part, the following analysis (internal citiations omitted).

“[T]he Department does not presently intend to take any enforcement action with respect to the proposed payment of approximately $13,500 to $20,500 described in the Request.

A person may violate the FCPA by making a payment or gift to a foreign official’s family member as an indirect way of corruptly influencing that foreign official.  However, “the FCPA does not per se prohibit business relationships with, or payments to, foreign officials.”  Rather “the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”

Although no previous opinion release addresses the precise facts at issue here, the Department has previously expressed its lack of enforcement intent in matters where the requestor provided adequate assurances that the proposed benefit to the foreign official would have no impact on the requestor’s present or future business operations.

This is not to say that paying the medical expenses, or any other expenses, of a foreign official’s family member could never violate the FCPA. The payment of such expenses would certainly violate the FCPA if intended corruptly to influence a foreign official to use his or her position “in order to assist … in obtaining or retaining business for or with, or directing business to, any person.”

Here, however, the facts represented suggest an absence of corrupt intent and provide adequate assurances that the proposed benefit to Foreign Official’s daughter will have no impact on Requestor’s or Requestor’s Law Firm’s present or future business with Foreign Country A. As noted above, Foreign Official does not and will not play any role in the decision to award Foreign Country A’s legal business to Requestor’s Law Firm. Requestor and Foreign Official have informed their respective employers of the proposed gift and neither has objected. Indeed, the Attorney General of Foreign Country A has expressly stated that the proposed gift will not affect the decision to award work to Requestor’s Law Firm and, under the circumstances presented, is not illegal under Foreign Country A’s laws. This is further reinforced by Foreign Country A’s public contracting laws, which require transparent reasoning in contracting for legal work and criminally punish corrupt behavior. Finally, Requestor intends to reimburse the medical provider directly, ensuring that the payments will not be improperly diverted to Foreign Official. Accordingly, based on the representations made in the Request, including those described above, the Department does not presently intend to take enforcement action.”

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One criticism of DOJ FCPA Opinion Procedure Releases is the time it takes a requestor to obtain the DOJ’s opinion.  Release 13-01 states as follows.

“[The request was] submitted on October 15, 2013, as well as supplemental information that was submitted by Requestor on November 12, 2013, and November 25, 2013.”

In short, it took over two months for the requestor to obtain the opinion.

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It is interesting to note that the DOJ cited U.S. v. Liebo, 923 F.2d 1308 (8th Cir. 1991) twice in Release 13-01.

As noted in this recent post, a key conclusion by the Eighth Circuit in Liebo was that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

Regarding Princelings And Family Members

Wednesday, August 21st, 2013

As a result of JPMorgan’s scrutiny over its alleged hiring of family members of alleged Chinese “foreign officials,” (see here for the prior post), FCPA Inc.’s vocabulary has been expanded to include the word “princelings.”  But then again “princelings” in China are nothing new – see this excellent May 2012 article in the New York Times – as well as here.

The prior JPMorgan post highlighted at least five FCPA enforcement actions based, in part, on allegations that a company hired family members of alleged “foreign officials” for alleged improper purposes.  As typical with FCPA corporate enforcement actions, none of those enforcement actions were subjected to any meaningful judicial scrutiny.

This Wall Street Journal article earlier this week cites a “U.S. official” who said that “the government wouldn’t even have to show a benefit was actually derived from a hire.  ‘Corrupt intent is the beginning and the end of the analysis,’ the official said. ‘It’s what your intent was, not if you were successful.’  Not so fast, said this FCPA attorney in the WSJ article – that scenario presents ”epic proof problems for the government” and “even if the hiring may be motivated by a desire to curry favor with the foreign official, that doesn’t mean the hiring is corrupt if everything else about the hiring is appropriate.”

Indeed, as I noted in the prior post and in the New York Times article, there is nothing inherently illegal about hiring family members of alleged “foreign officials.”

The issue of hiring a family member of an alleged “foreign official” as an agent or representative (not in-house so to speak) has been directly raised in three DOJ FCPA opinion procedure releases.

Release 82-04 (1982) states:

“The Department of Justice has received a review request from Thompson & Green Machinery Company, Inc. (“T & G”) pursuant to the Review Procedure Releases Procedure.

T & G intends to compensate a foreign businessman (“Mr. X”) whom it hired and used as its agent in connection with a generator sale in a foreign country. The written consultant agreement, which obligates T & G to pay “Mr. X” a commission for his efforts in promoting the sale, notes that no part of Mr. X’s commission will be used by Mr. X, either directly or indirectly, to pay any commission or finder’s fee to a third party. Furthermore, the consultant agreement references the FCPA’s prohibition of the payment or giving anything of value to an employee or official of a foreign government. After having been advised that Mr. X’s brother (“Mr. Y”) is an employee of the very foreign government with whom T & G concluded the generator sale, T & G obtained separate affidavits from both Mr. X and Mr. Y in which they pledge adherence to the antibribery provisions of the FCPA. T & G has represented that it will pay Mr. X his commission by check or bank transfer in the country where the services were rendered, and the company will require Mr. X to declare and exchange his commission in accordance with all applicable currency control laws in that foreign country.

Based on all the facts and circumstances as represented by the requestor, the Department does not presently intend to take an enforcement action with respect to the compensation of Mr. X by T & G.”

Release 84-01 (1984) states:

“The Department has reviewed a review request from an American firm which seeks to engage a foreign firm (“Marketing Representative”) as its marketing representative in a foreign country. The Marketing Representative’s principals are related to the head of state of the foreign country. Moreover, one of the Marketing Representative’s principals personally manages certain of the head of state’s private business affairs and investments.

This proposed contractual relationship has raised concerns about the application of the FCPA, and the American firm has requested a determination of the Department’s present enforcement intention under the Act.

The requester has made the following representations, among others, with respect to its proposed contractual relationship with the Marketing Representative:

1. The Marketing Representative will represent that it will not pay or agree to pay, directly or indirectly, any funds or anything of value, on behalf of the American firm, to any public official in the foreign country for the purpose of influencing the official’s official acts, or to induce the official to use his influence to the Marketing Representative’s benefit. The Marketing Representative will also represent that no owner, partner, officer, director, or employee is or will become an official of the foreign government during the term of the agreement.

2. The proposed agency agreement provides that if the Marketing Representative directly or indirectly offers, pays, promises, gives or authorizes payment of any money or anything of value to any government or public official for the purpose of influencing any act or decision of such official in his official capacity, or inducing him to use his influence with the foreign government to influence the government’s decision concerning retention of the American firm, the agreement will automatically be rendered void ab initio and the Marketing Representative will automatically surrender any claim for any payment under the agreement even for sales previously concluded or sales previously rendered. Either party may terminate the agreement without cause upon 30 days’ notice. The agreement is governed by the law of the state in which the American firm has its principal place of business.

3. The Marketing Representative will be solely responsible for all of its costs and expenses incurred in connection with its representation of the American firm, unless the latter expressly assumes responsibility in writing in advance for specified expenses. Any claim for reimbursement of expenses specifically assumed in advance by the American firm must be accompanied by a detailed itemization of expenses claimed and a copy of the American firm’s written authorization of the expenditure. All purchase orders must be in writing. The American firm will pay commissions only in U.S. dollars and only in the foreign country in which the Marketing Representative has its principal place of business.

4. The Marketing Representative will have no right to assign any portion of its rights under the agreement to any third party without the prior written consent of the American firm. Likewise, the Marketing Representative will not obligate the American firm to third parties without the latter’s prior written consent.

5. The Marketing Representative will make, when required, full disclosure to the United States government and the foreign government of its identity and the amount of commission applicable to a specific contract. It has also been represented that the American firm considered several factors in selecting the Marketing Representative. Among these were considered: (1) the number of years the Marketing Representative has been in operation; (2) the Marketing Representative’s successful representation of several large U.S. and foreign corporations; (3) the qualifications of the Marketing Representative’s principals; and (4) the Marketing Representative’s reputation among businessmen and bankers both in the U.S. and abroad.

Based upon all of the facts and circumstances, as presented by the requester, the Department does not presently intend to take any enforcement action premised upon its proposed contractual relationship with Marketing Representative.”

Release 95-03 (1995) states:

 ”The Department has received an FCPA opinion request from an American company and several foreign entities and individuals with which the American company proposes to enter into a joint venture. The proposed Joint Venture would engage in cooperative ventures in the investment banking field in a foreign country. The Joint Venture would also apply for a license to do business in the foreign country. Formation of the Joint Venture was conditioned upon, in part, a favorable FCPA opinion from the Department.

One of the proposed Joint Venture partners of the American firm is an entity which is the family investment company of, among others, a relative of the leader of the country in which the Joint Venture will conduct business. The relative is represented to be a prominent businessperson with significant managerial experience and responsibilities and who holds public and political party offices. Without question, the relative is a “foreign government official” as that term is used in the FCPA, and it is this circumstance which has prompted the request under the FCPA Opinion Procedure.

The American company, which will provide 50 percent of the start-up capital for the Joint Venture, would have effectively irrevocable power to appoint the most senior official of the Joint Venture — and any successors — who would have extensive powers in the management of the business of the Joint Venture, including the power to appoint outside auditors. The Joint Venture official would also have the power to take such steps as he or she deemed necessary to ensure compliance with the FCPA, including the power to order an audit.

The role of the foreign government official and member of that official’s immediate family in the Joint Venture would include assisting the Joint Venture in making important contacts in the country, providing investment advice and management consulting services, and development of new business for the Joint Venture.

Each of the parties to the FCPA request would receive a percentage of the gross or net profits received as a result of the government projects awarded to the Joint Venture. The foreign government official and the official’s relative would also receive annual payments in the range of $100,000 to $250,000 for services rendered as officers of the Joint Venture.

The foreign government official and the official’s relative have signed the FCPA Opinion Request, and have thus represented directly to the Department of Justice that they will comply with the FCPA as if they were subject to the Act. All the requestors, including the foreign official, further represent, among other things, the following:

1. Each requestor is familiar with the FCPA and its prohibitions; is in compliance with the laws of the foreign country and the FCPA as if they were subject to it and will remain in compliance for the duration of the Joint Venture.

2. No part of the payments received directly or indirectly by the requestors from the American company will be used for any purpose, nor will any action be taken by any requestor in connection with the business of the Joint Venture, which would constitute a violation of the laws of the foreign country or the FCPA.

3. The foreign official’s government and political party duties do not involve any decisions to award business in connection with the government projects sought by the Joint Venture or in the appointment, promotion, or compensation of the government officials who will decide which companies will receive such business, nor are those duties related to any of the official’s other duties on behalf of the Joint Venture or the interests of the American company.

4. Should the nature of the foreign government official’s public offices or responsibilities change so that the official’s representations in the FCPA Opinion Procedure request would no longer apply, the official will so notify the other requestors so that appropriate actions may be taken.

5. No meetings with government officials on behalf of the Joint Venture will be initiated by the foreign government official and all such meetings will be attended by no fewer than two Joint Venture representatives.

6. In connection with each meeting the official attends with a government official on behalf of the Joint Venture, the official will provide a letter to the Minister and most senior civil servant of the relevant government department, stating that the official is acting solely in the official’s capacity as a participant in the Joint Venture.

7. No member of the Joint Venture will assign its rights under the Joint Venture to a third party without the prior approval in writing of the other Joint Venture members. The requestors acknowledge that such a transfer, if approved, may require consultation with the Department of Justice should the identity of the transferee implicate the FCPA.

8. Specific procedures will be in effect with respect to the operation of the Joint Venture, including requirements concerning the keeping of accurate expense, correspondence, and other records of the business of the Joint Venture, including a requirement that all payments by the Joint Venture will be by check or bank transfer and no payments will be made in cash or by bearer instruments. All payments owed to a requestor or Joint Venture party will be made directly to that party and all payments to foreign parties will be made in the foreign country in question.

Based upon all the facts and circumstances, as represented by the requestors, the Department does not presently intend to take any enforcement action with respect to the prospective Joint Venture described in the request.”

The above releases contain, as do all such releases, the following qualification.

“this Release have no binding application to any party which did not join in the request and can be relied upon by the requesting party only to the extent that the disclosure of facts and circumstances in the request is accurate and complete and continues to accurately and completely reflect such facts and circumstances”

And of course these 1980′s releases were authored by individuals who have long left the DOJ’s FCPA enforcement program.

The above releases are in addition to numerous DOJ FCPA releases that address the issue of hiring an alleged “foreign official” directly or otherwise doing business with an alleged “foreign official” – see  80-04, 82-03, 85-03, 86-01, 93-01, 93-02, 94-01, 96-02, 00-01, 01-02, 08-01, 10-01, 10-03, 12-01.  See here and here for links to the releases.

For addition reading, see “Corrupt Intent, Relationship Building, and Quid Pro Quo Bribery:  Recent Domestic Bribery Cases” in the September 2011 FCPA Update from Debevoise & Plimpton.

Latest FCPA Opinion Procedure Release Reflects A High Level Of Anxiety

Tuesday, October 30th, 2012

The current era of Foreign Corrupt Practices Act enforcement has led to a high level of anxiety and skittishness over things that should not.  The end result is overcompliance and inefficient use of resources.

Case in point is the latest FCPA Opinion Procedure Release (12-02 – see here).

Despite a directly on point FCPA opinion procedure release from 2011 involving the exact same situation, despite several other directly on-point opinion procedure releases, and despite a statutory affirmative defense concerning reasonable and bona fide expenses concerning promotion, demonstration or explanation of products or services – all of which a first-year associate would be capable of analyzing, the Requestors in Release 12-02 were still apparently skittish enough to go through the time (and no doubt expense) of obtaining a DOJ seal of approval as to conduct that would not raise an eyebrow if directed to a non-foreign official.

In Release 12-02 (dated October 18th), the DOJ received a request “from 19 non-profit adoption agencies headquartered in the U.S.” seeking an opinion “related to their proposal to host 18 government officials from a foreign country during visits to the United States.”  The purpose of the trip “is to allow government officials from the Foreign Country to learn more about the Requestors’ work, which includes processing adoptions in the Foreign Country” and during the trip the officials “will interview the Requestors’ staff members, inspect the Requestors’ files, and meet with families who adopted children from the Foreign Country.”

The release involves the exact same situation at issue in Release 11-01 (here) in which other non-profit adoption agencies sought a DOJ opinion concerning travel by foreign officials.  As noted in this prior post, the DOJ stated its intention that the contemplated conduct did not raise any FCPA issues.

Release 12-02 notes as follows concerning the 18 officials the Requestor is seeking to host.

“ 13 are from the government ministry in the Foreign Country that oversees adoptions (the “Adoption Ministry”), and one is the presiding judge of the court in the Foreign Country that ultimately approves or disapproves adoption requests (the “Adoption Court”). The Adoption Ministry exercises discretion in determining whether to issue an opinion approving of an adoption, and the Adoption Court exercises similar discretion in ultimately approving or rejecting adoptions. The remaining officials are the director of the Foreign Country’s agency that oversees orphanages, a minister in the Office of the Foreign Country’s head of government, and two members of the Foreign Country’s legislature. The head of government and legislature play no direct role in the adoption process but can affect the process by appointing and confirming the Minister in charge of the Adoption Ministry and passing adoption-related legislation.”

The Release further states as follows.

“The trip will consist of approximately two days of meetings for each set of government officials (plus travel). Two of the officials will attend two trips, meaning that they will spend approximately four days in the United States (plus travel). The Requestors will pay for the following:

  • Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for  international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
  • Two or three nights hotel stay at a business-class hotel;

  • Meals during the officials’ stays; and

  • Transportation between agencies and local transportation.

The amount that the Requestors spend on hotels and meals will not exceed General Services Administration (“GSA”) rates.  The Requestors will pay for business class airfare for high-ranking officials which, as proposed, is permitted by the Foreign Country’s government. The Requestors will pay all expenses directly to the providers and will not give any money, including per diems, directly to the government officials. If some of the trips require staying over a weekend, the Requestors will pay for hotels and meals during those periods, subject to the same limitations above. The Requestors will share the costs of the trips.

The Requestors have also represented, among other things, that:

  • The Requestors plan to organize entertainment events that will be of nominal cost and will involve families who have adopted children from the Foreign Country.  The Requestors are not planning to fund, organize, or host any other entertainment, side trips, or leisure activities for the officials.
  • The Requestors will not have a role in selecting the particular government officials who will travel.  That decision will be made solely by the Foreign Country’s government.
  • The Requestors will host only the designated government officials and not their spouses or family members.

  • Any souvenirs that a Requestor gives the visiting officials will reflect a Requestors’ business or logo and will be of nominal value.

  • Apart from the expenses identified above, the Requestors will not compensate the officials for their visit and will not provide the officials with any stipend or spending money.

  • Costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operations and services of U.S. adoption service providers.

  • The Requestors will not pay any additional money to the Foreign Country’s government or any other entity in connection with this trip.

Under the analysis section of the Release, the DOJ stated as follows.

“Based on their representations and proposed safeguards, the payments that the Requestors propose to make here fall within the same affirmative defense. First, the expenses described above are reasonable under the circumstances. This includes the provision of business class airfare for high-ranking officials, which, as proposed, is permitted by the Foreign Country. Second, the expenses are directly related to the promotion, demonstration, and explanation of the Requestors’ services. The Requestors represent that the purpose of the trip is to demonstrate the Requestors’ work to the government officials by allowing the government officials to interview the Requestors’ staff members, to inspect the Requestors’ files, and to meet with families who have adopted children from the Foreign Country. The proposed itineraries are consistent with this purpose.

Based upon all of the facts and circumstances, as represented by the Requestors, including additional information received from the Requestors and consistent with the prior opinions discussed above, the proposed expenses reflect no corrupt intent and appear to be bona fide promotional expenses.  The expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of the Requestors’ products or services.”

Accordingly, with respect to the trips that the Requestors propose paying for, based on the representations made in the Request, including those recited above, as well as the Department’s review of supplemental materials submitted by the Requestors, the Department does not presently intend to take enforcement action.”

Like Release 11-01, Release 12-02 speaks volumes as to the high level of anxiety and skittishness in this current era of FCPA enforcement over things that should not.

DOJ’s Recent Opinion Procedure Release Creates Additional “Foreign Official” Confusion

Thursday, October 4th, 2012

On September 18th, the DOJ issued this FCPA Opinion Procedure Release.  Seldom do things go unnoticed these days in the FCPA space, but this post appears to be the first public reporting of the release issued a few weeks ago.

First a summary of the Release which focuses on “foreign official” issues and then some analysis and commentary.

The Requestor was a U.S. lobbying firm who wished to represent the Embassy of a Foreign Country to the United States and the Foreign Country’s Foreign Ministry in its lobbying activities in the United States.

The Release describes as follows.   “To facilitate that lobbying representation, the Requestor further wishes to contract with a third party (the “Consulting Company”) to introduce the Requestor to the Foreign Country Embassy, to advise the Requestor on cultural awareness issues in dealing with the Foreign Country’s officials and businesses, to act as the Requestor’s sponsor in the Foreign Country, to help the Requestor establish an office in the Foreign Country, and to identify additional business opportunities for the Requestor in the Foreign Country. One of the partners in the Consulting Company is a member of the royal family of the Foreign Country (the “Royal Family Member”), although he holds no position in the government.”

According to the release, the Consulting Company “is a limited liability company located in both the United States and the Foreign Country” and it has ”three partners, one of which is the Royal Family Member.”

As to the Royal Family Member, the release states as follows.

“The Royal Family Member holds no title or position in the government, has no governmental duties or responsibilities, is a member of the royal family through custom and tradition rather than blood relation, and has no benefits or privileges because of his status. The Royal Family Member has held only one governmental position in the Foreign Country: in the late 1990s, he served for less than twelve months in a position overseeing a governmental construction project.  Other than this one previous governmental position, the Royal Family Member does not act—and has never acted—in any capacity for, or on behalf of, the Foreign Country, or any department, agency, or instrumentality of the Foreign Country. The Royal Family Member has also never had any role in any public organization. The Royal Family Member’s position in the royal family does not put him in line to ascend to any governmental post.”

As to why the Requestor would engage the Consulting Company and the Royal Family Member in the first place, the release states as follows.

“Any private sector company planning to open an office or operate a business in the Foreign Country is required by law to have local sponsorship. The Royal Family Member has sponsored numerous foreign companies wishing to do business in the Foreign Country. In his work on behalf of these foreign companies, the Royal Family Member interacts in his personal capacity (i.e., not on behalf of the royal family) with government officials of the Foreign Country who are not themselves members of the royal family.”

The release further states as follows.  “The Requestor believes that the Royal Family Member’s experience and expertise in matters relating to the Foreign Country are essential to its succesful lobbying efforts on behalf of the Foreign Country Embassy.  In addition to these services, the Consulting Company may also work to identify additional business opportunities in the Foreign Country for the Requestor.”

The release notes that under the proposed engagement, the Requestor would pay the Consulting Company 20% of what it receives from the Foreign Country Embassy which the Consulting Company would then split equally “among its three partner, one of whom is the Royal Family Member.”

Based on these circumstances, the DOJ framed the issues as follows: (1) whether the Royal Family Member is a “foreign official” under the FCPA; and (2) whether the Requestor’s proposed engagement with the Consulting Company would result in any enforcement action by the Department.

The DOJ’s opinion “is that the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member 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 DOJ further stated as follows.  ” [B]ased on the facts as represented by the Requestor, the Requestor’s proposed engagement of the Consulting Company to assist in its potential representation of the Foreign Country Embassy in its U.S. lobbying efforts may go forward without enforcement action.  The Department does not opine about any other aspect of the proposed engagement.”

In terms of the DOJ’s “analysis,” the Release states as follows.

“A person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a ‘foreign official.’ Rather, the question requires a fact-intensive, case-by-case determination that will turn on, among other things, the structure and distribution of power within a country’s government; a royal family’s current and historical legal status and powers; the individual’s position within the royal family; an individual’s present and past positions within the government; the mechanisms by which an individual could come to hold a position with governmental authority or responsibilities (such as, for example, royal succession); the likelihood that an individual would come to hold such a position; an individual’s ability, directly or indirectly, to affect governmental decision-making; and numerous other factors.  The Department concludes that the Royal Family Member does not presently qualify as a foreign official.”

In support, the DOJ cites the Carson case as follows.  “District court decisions addressing whether a state-owned entity may be an ‘instrumentality’ of a foreign government are also instructive for identifying the characteristics of a ‘foreign official’ under the FCPA.  In these cases, courts applied a fact-based analysis that focused on several factors, such as those articulated in United States v. Carson:

• 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, including whether the entity exercises exclusive or controlling power to administer its designated functions;

• The circumstances surrounding the entity’s creation; and

• The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).”

The DOJ then states as follows.  “[W]hether a member of a royal family is a ‘foreign official’ turns on such factors as (i) how much control or influence the individual has over the levers of governmental power, execution, administration, finances, and the like; (ii) whether a foreign government characterizes an individual or entity as having governmental power; and (iii) whether and under what circumstances an individual (or entity) may act on behalf of, or bind, a government.  This inquiry is fact-intensive and no single factor is dispositive.”

The DOJ then states as follows.

“In the Department’s opinion, in light of the representations made by the Requestor recited above, this member of this particular royal family is not a foreign official—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. As represented by the Requestor, the Royal Family Member presently has no official or unofficial title or role in the Foreign Country’s government, nor does he have any official or unofficial power over any aspect of the Foreign Country’s governmental decision-making process, executive function, administration, finances, or, indeed, any aspect whatsoever of the government, including specifically the direct or indirect power to award the business the Requestor seeks. The Royal Family Member also cannot, by virtue of his membership in the royal family, ascend to a governmental position and has no benefits or privileges because of his status as a Royal Family Member. Further, the Royal Family Member has no relationship—personal, professional, or familial—with the decision-makers in the Foreign Country’s Embassy and the Foreign Country’s government who will decide whether to award the business the Requestor seeks. In light of these representations, the Royal Family Member has no power to affect the Foreign Country government’s award of the engagement the Requestor seeks.”

And now for some analysis and commentary.

The logical import of the DOJ’s opinion is that when a foreign individual “does not directly or indirectly represent that he is acting on behalf” of a foreign government “or in his capacity as a member” of a foreign government, then that individual is not a “foreign official” under the FCPA.  The folly of the DOJ’s position is the high likelihood that the vast majority of individuals the DOJ considers to be “foreign officials” under the FCPA (such as employees of alleged state-owned or state-controlled enterprises or employees of certain foreign health care providers) are clueless that they are considered foreign government actors under U.S. enforcement agency interpretations.

Moreover, the DOJ’s conclusion that ”a person’s mere membership in the royal family of the Foreign Country, by itself, does not automatically qualify that person as a “foreign official” is difficult to square with the DOJ’s statement in its FCPA Lay-Person’s Guide (here) that “the FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment …”.

The DOJ’s opinion in Release 12-01 however appears to be based entirely on the Royal Family Member’s particular duties or lack thereof.

Moreover, by focusing on the Royal Family Member’s particular duties or lack thereof, the DOJ actually drifts far-away from the Carson factors it cites to support its decision.  The Carson factors all focus on the status of the entity employing an alleged “foreign official” without any reference to a specific individuals particular duties or lack thereof.  In its recent 11th Circuit “foreign official” brief (here), the DOJ likewise elevates status over duties in assessing whether employees of Haiti Teleco were “foreign officials” under the FCPA.

However, in Release 12-01 the DOJ switches gears and elevates duties above status.  In doing so, the DOJ actually goes back to the FCPA’s original definition of “foreign official” which categorically excluded certain bona fide traditional government officials based on their duties.  The FCPA’s original definition of “foreign official” stated as follows “any 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 such government or department, agency or instrumentality. Such terms does not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”

In short, the DOJ’s recent Release further adds to existing confusion of a key element of the FCPA.

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The DOJ’s Opinion Procedure Release is also notable given the following sentence.  “In declining to take enforcement action, the Department has also considered the steps that the Requestor and the Consulting Company have taken here to comply with the FCPA and other anti-bribery laws.”

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here), I argue that despite DOJ’s institutional opposition to an FCPA compliance defense, the DOJ currently recognizes a de facto compliance defense in a number of ways including its FCPA Opinion Procedure Releases.  I highlight that in many FCPA Opinion Procedure Releases, the DOJ recognized a Requestor’s good-faith efforts to comply with the FCPA through pro-active compliance measures designed to reduce liability.  I then argue that good-faith efforts to comply with the FCPA through pro-active compliance measures should be recognized as a matter of law and not just when an organization decides to engage in the formal FCPA Opinion Procedure Release Program.

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A final point regarding Opinion Procedure Release 12-01 deserving of attention is the time it took the Requestor to obtain a DOJ opinion.  The Requestor submitted the release on February 15, 2012 and it took the DOJ (after requesting supplemental information) until September 18, 2012 to issue its opinion.  The DOJ frequently cites the Opinion Procedure Release as a panacea for business concerns regarding FCPA ambiguity (i.e. if business is confused submit to the Opinion Procedure Release program).  Seven months may seem like a short time period in government, but in the real-world where business decisions and contracts can be won or lost in a matter of days, it is not practical for a Requestor to wait seven months for a decision.  If the DOJ wants its Opinion Procedure Release program to be taken seriously, it must issue more prompt opinions.