In the recently announced Foreign Corrupt Practices Act enforcement action against Daren Condrey (see here for the prior post), the DOJ advanced an extremely broad “foreign official” interpretation.
In short, the DOJ alleged that a Maryland resident (Vadim Mikerin), working for a Maryland corporation (TENAM Corporation), was a Russian “foreign official.”
According to the DOJ, TENAM was a wholly-owned subsidiary on TENEX – an entity “indirectly owned and controlled by, and performed functions of, the government of the Russian Federation.”
The FCPA Guidance addressed the enforcement agencies’ views on whether an entity indirectly owned by a foreign government can be an instrumentality under the FCPA – such that its employees are “foreign officials” under the FCPA – and states: “as a practical matter, an entity is unlikely to qualify as an instrumentality if a government does not own or control a majority of its shares.”
In Esquenazi, the 11th Circuit articulated a control and function test to determine whether a business organization is an instrumentality under the FCPA. The court stated:
“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.”
In short, the DOJ’s “foreign official” theory in Condrey is seemingly at odds with its own guidance as well as the only legal decision of precedent to address the “foreign official” issue.
And it is not the first post-Guidance, post-Esquenazi FCPA enforcement action to do so.
As highlighted in this prior post, while a minor component of the overall Alstom enforcement action in late 2014 (see here for the prior post), a noteworthy allegation in the enforcement action was that Asem Elgawhart, who was employed by Bechtel Corporation (a U.S. company) and was assigned by Bechtel to be the General Manager of Power Generation Engineering and Services Company (PGESCo), a joint venture between Bechtel and Egyptian Electricity Holding Company (the alleged “state-owned and state-controlled electricity company in Egypt”) was an Egyptian “foreign official.”
In the Alstom enforcement action, PGESCo and Elgawhart are described as follows:
As to Egypt, the information concerns bidding on various projects with the Egyptian Electricity Holding Company (“EEHC”), the state-owned and state-controlled electricity company in Egypt. According to the information, “EEHC was not itself responsible for conducting the bidding [on projects], and instead relied on Power Generation Engineering & Services Co. (“PGESCo”), which was controlled by an acted on behalf of EEHC.”
PGESCo was controlled by and acted on behalf of EEHC. PGESCo worked “for or on behalf of’ EEHC, within the meaning of the FCPA, Title 15, United States Code, Section 78dd-l (f)( 1) [the FCPA’s “foreign official” definition].
According to the DOJ, Alstom used a consultant whose primary purpose “was not to provide legitimate consulting services to Alstom and its subsidiaries but was instead to make payments to Egyptian officials, including Asem Elgawhary who oversaw the bidding process.”
As if the DOJ’s “foreign official” enforcement theory was not already broad enough (and in conflict with Congressional intent in passing the FCPA notwithstanding the flawed Esquenazi decision – see this article at pgs. 24-41 to learn more) the DOJ’s “foreign official” theory in the above enforcement actions was extraordinarily broad and has implications for any person (privately employed) working on projects with participation by a foreign government department, agency or instrumentality.