identifying foreign officials under the fcpa: interpreting
TRANSCRIPT
Identifying Foreign Officials Under
the FCPA: Interpreting Varying
DOJ/SEC and Court Guidance Sharpening Compliance Through Understanding Who Is and Who Is Not a Foreign Official
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TUESDAY, AUGUST 20, 2013
Presenting a live 90-minute webinar with interactive Q&A
James G. Tillen, Member, Miller Chevalier, Washington, D.C.
Matteson Ellis, Special Counsel, Miller & Chevalier, Washington, D.C.
Mark Gough, Deputy Head for Compliance Investigations, Siemens, Munich, Germany
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Identifying Foreign Officials Under
the FCPA
Strafford Publications
August 20, 2013
James G. Tillen
Matteson Ellis
Miller & Chevalier Chartered
Mark Gough
Deputy Head, Compliance Investigations
Siemens
6
FCPA Anti-Bribery Provisions: Elements of a Violation
• No issuer, domestic concern, person with a U.S. nexus
• May corruptly
• Take any action in furtherance of payment or a promise,
offer, or authorization of payment
• Of a bribe or anything of value
• Directly or indirectly (with “knowledge”)
• To a foreign official
• To obtain or retain business or improper advantage
7
Foreign Official: Who is a “Foreign Official”?
• FCPA defines a “foreign official” as any officer or employee of:
a foreign government;
any department, agency or “instrumentality” thereof;
a public international organization (e.g., World Bank); and
any person acting in an official capacity for or on behalf of any of the above (could include intermediaries)
• FCPA also prohibits payments to foreign political parties or officials thereof and candidates for foreign political office
8
Foreign Official: As Applied
• In FCPA practice, the agencies found the following roles to fit the “foreign official” definition : Employee of any agency or instrumentality (e.g., employee of
tobacco monopoly, customs official)
Judge or legislator
Employee of public university or research institute
Private person acting officially
Official of a public international organization (e.g., the World Bank)
Tribal leader or member of Royal Family
Candidates for public office, elected officials, political parties, and party officials
Appointed official
Relative or dependent of an official
Employee of state-owned or partially state-owned enterprise
9
Foreign Official: “Instrumentality”
• FCPA does not define “instrumentality,” but agencies claim
it extends to SOEs and quasi-governmental entities
• Until recently, insight into term’s interpretation limited to
OECD Anti-Bribery Convention, negotiated settlements,
DOJ Opinion Releases, and comments of U.S. officials
• Critics allege that FCPA did not intend for all commercial
SOEs to be deemed “instrumentalities”
10
Foreign Official: “Instrumentality” Pre-Guidance Cases and Dispositions
• Recent court cases have focused on the issue of when
state-owned or state-controlled companies and qualify
as “instrumentalities”: Haiti Teleco, Carson, Lindsey,
and O’Shea
• In rulings on this issue, U.S. district courts have tended
to leave the determination to the jury and uphold jury
instructions with multi-factor tests
11
Who Is a “Foreign Official” – New Developments
• Appellate Review:
Esquenazi & Rodriguez (Haiti Teleco) appeal to the 11th Circuit
» Include a challenge to the District Court’s jury instruction on the term
“instrumentality”
» Defendants have argued that “instrumentality” status determined by
government function served by entity (or lack thereof), not degree of
state ownership
» First time a circuit court has the opportunity to clarify “foreign official”
definition
» Oral Arguments scheduled for October 11, 2013
• DOJ Opinion Procedure Release on whether a member of
a royal family is a “foreign official”
12
Release of FCPA Guidance
• On Nov. 14, 2012, DOJ and SEC jointly issued 120-page
“Resource Guide on the U.S. FCPA” (FCPA Guide)
• Overall, FCPA Guide does not fundamentally change key
enforcement positions, but expressly clarifies current
agency practices, while confirming and consolidating
public guidance and some “lore” in detail
• FCPA Guide is "non-binding, informal, and summary”
"does not constitute rules or regulations."
would have little legal authority if cited in court
• However, agency representatives have stated publicly
that statements in Guide may reasonably be relied on and
cited when negotiating with the agencies, which intend to
abide by the Guide’s terms
13
FCPA Guide on “Instrumentality”
• FCPA Guide endorses recent court rulings defining “instrumentality,”
incorporating list of non-exclusive factors:
State’s extent of ownership
State’s degree of control
State’s characterization of entity and its employees
Circumstances of entity’s creation
Purpose of entity’s activities
Entity’s obligations and privileges under foreign law
Power vested in entity to administer its functions
Level of financial support by foreign state
Entity’s provision of services to jurisdiction’s residents
Whether entity’s purpose is expressed in policies of foreign government
Perception that entity is performing official or governmental functions
• State-owned or controlled entities can be instrumentalities, but no
bright-line rule—fact-specific inquiry to be left to jury
14
FCPA Guide on “Instrumentality” (Cont.)
• FCPA Guide states that "as a practical matter” entities
unlikely to qualify as instrumentalities if government does
not own or control a majority of shares."
Only a presumption. Guide cites Alcatel-Lucent as one exception
where “instrumentality” status was found even though there was no
majority ownership
• Thus majority ownership/control alone not sufficient for
status as “instrumentality”—one of several key factors
• Similarly, majority control/ownership also theoretically not
required for status as “instrumentality”
15
FCPA Guide on “Instrumentality” (cont.)
• Alcatel-Lucent (2010)
• Countries: Malaysia, Costa Rica, Honduras, Taiwan
• In Malaysia, enforcement officials viewed bribes to employees
of Telekom Malaysia as “foreign officials”
Malaysian Ministry of Finance owns 43% of Telekom
Malaysia
Ministry of Finance has veto power over all major
expenditures
Minister of Finance has status of a "special shareholder"
Some Telekom Malaysia officers are political appointees
16
Is Issue Moot?
• UK Bribery Act and many local laws prohibit
commercial bribery
• Travel Act and other U.S. laws used to reach
commercial bribery
• Administrative ease of not distinguishing between
officials and non-officials
17
The Varied Nature of SOEs: Are they arms of the state?
• Examples from Mexico:
Power utilities (ABB – CFE): Providing a public
function?
Public hospitals (Orthofix – IMSS and hospitals):
Provision of services to residents?
National oil companies (Siemens – Pemex):
Financial support by state?
18
Example of Government Control: “Power to Appoint”
U.S. v. Esquenazi
Upon appeal, DOJ argues that one of factors
establishing that the company Teleco was an
instrumentality of Haiti was that:
“Haiti’s president and high-level ministers controlled
Teleco through their appointment of Teleco’s board of
directors and general director.”
19
Example of Government Control: “Power to Appoint”
• Examples of government influence / political
interference:
Board appointees selected for political reasons, not
commercial ones
Unqualified lower-level hires
Unfavorable suppliers and third parties
Misguided investment decisions
• Effects of government influence
20
The Varied Nature of SOEs: Are they private actors in the marketplace?
• Impacted by commercial factors and decision-
making based on commercial considerations.
• SOEs seeking public and private sector financing
• SOEs can violate the FCPA (Statoil)
• SOEs conducting internal investigations (Saudi
Aramco and Tyco’s FCPA settlement).
• SOEs inquiring about anti-corruption compliance
• SOEs as victims (Venezuela’s BANDES, Costa
Rican electricity utility, Mexico’s PEMEX)
21
Common Corruption Risks with SOEs
• Procurement Risks (high dollar contract awards)
Foreign officials require bidders to hire “consultants”
Companies hire foreign officials (doctors) to perform
services (trainings)
Companies rely on “experts” for bid preparation who
formerly worked at SOE
Specifications narrowly designed to benefit bribe-
paying company
SOEs create complicated technical requirements to
establish discretion in decision-making
22
Common Corruption Risks with SOEs
• Procurement Risks (high dollar contract awards),
cont.
Companies gain access to confidential information,
like tender specifications before they are released or
competitor’s bid
Procurement officials fully vet one bid to disqualify it
and give a less rigorous review to a higher-priced bid
Companies entertain procurement officials before
procurement is announced and specifications defined
23
Common Corruption Risks with SOEs
• Gifts and Hospitality
In some countries and industries, it is common to give
gifts and to provide hospitality to clients, including
foreign officials.
At what point does a gift or hospitality become a
bribe?
In addition to other factors, the activity should comply
with local law.
Example, Mexico (gift limits of $48)
24
Common Corruption Risks with SOEs
• Charitable Contributions
Companies might wish to support non-profit and
community endeavors.
Companies must be careful to ensure that donations
to charities are not disguised as illegal payments to
foreign officials.
Companies must ensure that owners of the recipient
charity are not foreign officials (SOE officials?) or
relatives of foreign officials.
25
Local Law Differs
• “Public Official” includes:
Argentina: Employees of state-owned or state-
controlled companies so long as they are performing
public functions.
Brazil: Any person who discharges an office,
employment or function in a state-owned enterprise or
who works for a legal entity created by government to
undertake commercial or business activities on behalf of
the government.
Chile: Employees of state-owned companies which may
be dependent upon the state.
26
Local Law Differs
• “Public Official” includes:
Colombia: Companies with public investment under 90%
are private and their employees are not public officials.
Ecuador: If state-owned enterprise carries out a public-
function, then employees are considered public officials.
Mexico: A person employed by or holding an office or
commission in a majority federal state-owned enterprise,
or persons handling federal funds.
Venezuela: Directors and administrators of civil and
commercial companies established with public resources
or with a certain amount of government involvement
27
Consequences for Compliance Programs
• Identifying government customers, suppliers, and
business partners
• Training of employees
• Identifying which third parties are interacting with
officials of company and require safeguards
• Identifying which hospitality expenditures deserve
additional scrutiny