February 24th, 2015

SNC-Lavalin Should Be Grateful And Not Pout

Child CryingBut Mom / Dad, when Johnny gets into trouble his parents do things a little bit differently, why can’t I benefit from that?

As I told The Globe and Mail in this article, that is my reaction to SNC-Lavalin’s unusual statement upon being criminally charged by Canadian authorities for alleged improper payments to Libyan officials.

As noted in this previous post, last week the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.

Upon being charged, SNC-Lavalin issued this release, which as relevant here, stated:

“It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.”

SNC-Lavalin should be grateful about various aspects of Canada’s legal system (compared to the U.S.) and not pout.

For starters SNC-Lavalin can only be found guilty of the charges alleged to the extent one of its “senior officials” engaged in improper conduct.  This is a much more exacting standard than the very lenient U.S. standard of respondeat superior corporate criminal liability in which a business organization can face criminal liability to the extent any employee engaged in improper conduct within the scope of employment and intended, at least in part, to benefit the organization.

Perhaps most importantly, SNC-Lavalin should be grateful, and not pout, that Canadian authorities will have to prove the facts and legal theories alleged in the enforcement action.  In the U.S., FCPA enforcement agencies are rarely put in the position of having to prove anything in a corporate FCPA enforcement action.  Rather, the DOJ (or SEC) occupy the position of prosecutor, judge and jury all at the same time and use resolution vehicles such as non-prosecution and deferred prosecution agreements (NPAs / DPAs) or administrative settlements – all of which are not subjected to any meaningful judicial scrutiny.

In short, SNC-Lavalin should be grateful, and not pout, that Canadian law enforcement authorities have not abandoned (as U.S. authorities have) traditional legal principles in the name of ease and efficiency. Accusing a person – whether a natural person or a legal person such as SNC-Lavalin – was never meant to be easy or efficient and it is interesting that SNC-Lavalin appears to be begging for such a system.

In other portions of its recent statement, SNC-Lavalin stated that the criminal charges “are without merit.” In other words, SNC-Lavalin seems to be saying that even though the criminal charges “are without merit,” it would have gladly forked over tens of millions – or perhaps hundreds of millions of dollars – of shareholder money to make the RCMP go away.  How would that benefit SNC-Lavalin’s employees and shareholders?

It is also worth nothing that SNC-Lavalin’s statement casts several opinion statements as fact.

For instance, many would disagree that companies subject to the FCPA “benefit” from the common enforcement approach in which the DOJ (or SEC) are not put in a position to prove anything in relation to the facts and legal theories alleged.  Many would also disagree that companies subject to the FCPA “benefit” from the excessive leverage the DOJ (or SEC) have over companies in extracting corporate settlement.  Moreover, many would disagree that the U.S. approach to resolving corporate FCPA enforcement actions through NPAs and DPAs or administrative SEC actions have “been effectively used in the public interest.”

In short, SNC-Lavalin should be grateful, and not pout, that it is subject to a legal system in which law enforcement has to prove facts and legal theories to someone other than itself.

And let’s face it, the problem with SNC-Lavalin’s predicament has little to do with Canada’s legal regime for prosecuting companies, but rather Canada’s recent – and foolish – automatic debarment rules (see here and here).

Posted by Mike Koehler at 12:03 am. Post Categories: CanadaDebarmentSNC Lavalin




February 23rd, 2015

A Look Back At 2014

Today’s post is short on written words, but long on content.

Recently, I had the pleasure to again visit with Thomas Fox for his Foreign Corrupt Practices Act Compliance and Ethics Report.

In this episode I discuss:

  • 2014 FCPA enforcement statistics;
  • The variety of actions brought by the DOJ and SEC in 2014;
  • 2014 enforcement actions that should cause concern;
  • The top FCPA story from 2014;
  • 2014 FCPA opinion procedure releases;
  • Enforcement agency policy speeches from 2014; and
  • How a compliance defense can assist the enforcement agencies in accomplishing their objectives (see here for the prior post).

 

 

Posted by Mike Koehler at 12:03 am. Post Categories: Compliance DefenseMultimediaYear in Review 2014




February 20th, 2015

Friday Roundup

Roundup2Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.

It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.

“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”

“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $563,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past five quarters have been approximately $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $160 – $180 million (projected)

North of the Border

Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.”  As stated in the release:

“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.

The charges laid are the following:

In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad

  1. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
  2. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”

In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”

Upon being charged, SNC-Lavalin issued this release which states in full as follows.

“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.

“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”

It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.

These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.

While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.

Becoming a benchmark in ethics and compliance

Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:

  • Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
  • Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
  • Appointing compliance officers in all of the company’s business units and regional offices worldwide
  • Creating a dedicated Ethics and Compliance team
  • Further reinforcing internal controls and procedures
  • Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
  • Producing a dedicated  Anti-Corruption Manual
  • Offering annual compliance training to all employees, with a special focus on those working in strategic roles
  • Developing and distributing a world-class Business Partners Policy to employees
  • Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry

Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.

Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.

“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”

The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.

Scrutiny Alerts and Updates

Flowserve

In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq.  As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.

Earlier this week, Flowserve disclosed as follows.

“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia.  At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.

Earlier this week, Eli Lilly made this official when it disclosed:

“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”

Rolls-Royce

As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”

As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”

As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

U.K. Sentences

The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:

Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates.  Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.

Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.

Both men were disqualified from acting as company directors for six years.

Director of the SFO, David Green CB QC commented:

“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”

In passing sentence HHJ Higgins commented:

“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”

The briberyact.com published in full the Judge’s sentencing remarks.

Issue to Watch

This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action.  While outside the FCPA context, the editorial nevertheless notes:

“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”

*****

A good weekend to all.

Posted by Mike Koehler at 12:03 am. Post Categories: CanadaChristopher SmithEli LillyFCPA Investigative CostsFlowserve Corp.LibyaMonitorNicholas SmithRolls-RoyceSmith & Ouzman LtdSmith and Ouzman LtdSNC LavalinWal-Mart




February 19th, 2015

Navigating The ‘Gift, Entertainment And Hospitality’ Landscape In India

IndiaSherbir Panag (MZM Legal Advocates & Legal Consultants in Mumbai, India). Panag is the India Expert for FCPA Professor.

*****

FCPA enforcement actions in 2014 have seen companies such as HP Poland, Bruker and Avon (in part) face heat as a result of alleged bribes being paid under the alleged guise of gifts and corporate hospitality.

The risk for multinational companies operating in countries with engrained ‘gift giving’ and ‘hospitality extending / accepting’ cultures is thus a real compliance concern. India happens to be one such country where its cultural and ethnic diversity, multitude of festivals and high levels of public corruption, make the already complex compliance task all the more challenging.

In the ‘Resource Guide to the U.S. Foreign Corrupt Practices Act’ the DOJ and SEC recognize that a small gift is often an appropriate way for business people to display respect for each other. It further goes on to lay down some hallmarks of appropriate gift giving as “when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”

The focus of this post will be to help facilitate a better understanding of what gifts, entertainment and hospitality to public servants is permitted under Indian law.

Background:

India’s principal anti corruption legislation – the Prevention of Corruption Act, 1988 (PCA) recognizes that bribes paid to public servants are not limited to pecuniary gratifications or to gratifications estimable in monetary terms. This is further emboldened by the use of the term ‘any gratification whatever, other than legal remuneration’ in the substantive text of the bribery provisions. The gratification would be deemed to be illegal or a bribe if it is paid/given with the intention to:

  • motivate, influence or reward the public servant to perform or forbear performance of an official act;
  • show favour or disfavour to any persons;
  • render or attempting to render any service or disservice to a public servant.

Therefore, gifts given or hospitality extended to public servants beyond the threshold limits or in improper circumstances that are likely to influence the public servant, would be deemed as a bribe under Indian law.

Who is a Public Servant?

Section 2(c) of the PCA provides the definition of who would be deemed to be a public servant. The definition is extremely broad and includes among others government officials, local authorities, judicial officers, any holder of office to perform a public duty and employees of government owned or government controlled entities. Broadly speaking state control and financing is a reasonable test to determine whether an individual would be a public servant or not.

 What Gifts Can be Given and Hospitality Extended to a Public Servant?

Every public servant is governed by the conduct rules / code of conduct of his or her service or organisation. For example, the ‘All India Services (Conduct) Rules, 1968’ would cover services such as the Indian Administrative Services and the Indian Police Service, the state owned Oil and Natural Gas Corporation (ONGC) has the ‘ONGC Conduct, Discipline and Appeal Rules, 1994 (Amended 2011)’, Ministers of both the Union and States are governed by the ‘Code of Conduct for Minsters’ so on and so forth. These Conduct Rules establish the threshold limits on the value of gifts and hospitality that can be accepted by the concerned class of public servant and the circumstances thereof.

While the threshold value varies among the different services and organisation based on the class and seniority of the public servant, few standard aspects are prevalent:[1]

  • Public servants shall not accept nor have any member of his / her family or person acting on his/her behalf accept any gift for him / her.
  • Gifts shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.
  • Gifts of the specified value may be accepted by public servants from his / her near relatives or personal friends having no official dealing with him/her when the same is in conformity with prevailing religious and social practices.
  • Public servants shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the public servant had, has or is likely to have official dealings.
  • Generally a casual meal, lift or other social hospitality shall not be deemed to be a gift.
  • Public servants are to avoid accepting lavish hospitality or frequent hospitality from any individual or commercial organisation that have official dealings with him /her.
  • It is imperative to read the conduct rules / code of conduct alongside the applicable provisions and objectives of the PCA.

Best Practices That Corporations Should Bear in Mind While Framing Their ‘Gift, Entertainment and Hospitality’ Policies in India:

As noted above specific threshold limits as specified in the public servants code of conduct / conduct rules are applicable to them. Therefore, a ‘Gift, Entertainment and Hospitality’ policy must cater to these specificities and variations by keeping the following best practices in mind:

  • Companies should maintain a database of up to date and official conduct rules / code of conducts of the public servants it regularly interacts with.
  • Employees of the company should be adequately briefed on the legal need to carefully evaluate the specific gift, entertainment and hospitality provisions and corresponding threshold value of each class of public servant before giving a gift or extending hospitality to them.
  • Threshold values in the company policy must ideally be mentioned in Indian Rupees in order to ensure clarity and prevent any misunderstanding / misconduct that may inadvertently occur due to fluctuating foreign exchange rates.
  • Business courtesies should be accurately documented and reported in the company’s books and records.

[1] This list is merely indicative and is not exhaustive, nor applicable to all conduct rules / code of conduct. Items included in the list are subject to the exceptions, explanations, exclusions, modifications and additions as narrated in the respective conduct rules / code of conduct.

This post is purely informative and does not constitute legal advisory and should not be construed as such

Posted by Mike Koehler at 12:04 am. Post Categories: GiftsGuest PostsIndia




February 18th, 2015

Is The Current “Foreign Official” Enforcement Theory Unconstitutional?

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.

Posted by Mike Koehler at 12:03 am. Post Categories: Facilitating PaymentsForeign Official