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Sovereign Wealth Funds and the FCPA

Numerous previous posts have discussed the enforcement agencies’ interpretation of the key “foreign official” element of an FCPA antibribery violation and how that interpretation includes employees (regardless of title or position) of state-owned or state-controlled enterprises (“SOEs”) – even if the SOE has attributes of a purely commercial enterprise such as publicy traded stock. Part of this interpretation includes the notion that all employees of SOE subsidiaries are also “foreign officials” under the FCPA.

This interpretation has never been accepted by a court, yet it remains a central feature of FCPA enforcement.

Two-thirds of 2009 FCPA enforcement actions against business entities involved, in whole or in part, “foreign officials” under this dubious legal interpretation.

The most aggressive application of the enforcement agencies’ “foreign official” interpretation was in the KBR / Halliburton enforcement action (here and here) in which the enforcement agencies alleged that officers and employees of Nigeria LNG Limited (“NLNG”) were “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies – Shell, Total, and Eni (see here).

In other words, even if an entity is undeniably majority owned by private companies, the enforcement agencies will not retreat from the dubious legal interpretation that employees of that entity are “foreign officials” under the FCPA.

I’ve noted before that this dubious legal interpretation can lead to strange results such as employees of a Delaware company perhaps being Venezuelan “foreign officials” (see here) and an American citizen perhaps being a Dubai “foreign official” (see here).

Strange and unexpected results can also occur when applying the enforcement agencies’ “foreign official” interpretation to so-called sovereign wealth funds (i.e. foreign government owned investment vehicles).

While no FCPA enforcement action has yet involved a sovereign wealth fund, such funds and the investments these funds make in private companies, are clearly on the radar screen of the enforcement agencies as both DOJ and SEC officials have in the past publicly stated that sovereign wealth funds pose FCPA risks because the funds are government owned (see here and here).

The next frontier of the enforcement agencies’ dubious “foreign official” interpretation may thus be application to the investments made by sovereign wealth funds.

Against this backdrop, it is interesting to take a peek inside one of the largest sovereign wealth funds, China Investment Corporation (here), “an investment institution established as a wholly state-owned company under the Company Law of the People’s Republic of China and headquartered in Beijing.”

According to CIC’s recent SEC filing (here), the exact reason for that filing appears unclear (see here), CIC owns equity stakes in more than 60 U.S. corporations including Abbott Labs, Apple, Bank of America, Coca-Cola, Goodyear Tire and Rubber, Metlife, Pfizer, Pulte Homes, Visa, and Wells Fargo.

At present, CIC’s holdings are small, minority stakes. However, if CIC’s holdings grow, would Coca-Cola, Wells Fargo, etc. employees be considered Chinese “foreign officials?” Can it truly be the case that such U.S. citizen employees (regardless of title) are percentage points away from becoming Chinese “foreign officials?”

The rise in sovereign wealth funds, particularly CIC, is not just a U.S. issue, as CIC has acquired substantial stakes in Canadian and Australian companies as well. Does that mean that a Canadian or Australian citizen can be a Chinese “foreign official?”

The above questions are not merely hypotheticals and it seems ridiculous to think that the answers would be “yes” – but that would seem to be the answer if the enforcement agencies’ dubious “foreign official” interpretation were applied in an intellectually honest fashion to the above questions.

With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear its legal reasoning and support for its dubious legal theory.

Africa Sting – Alvirez Superseding Indictment and Expected Plea – New Charges Relating to the Republic of Georgia

When the Africa Sting indictments were first unsealed, I noted as follows:

“Given the number of individuals indicted, and the motivations for pleading under the Sentencing Guidelines, it would seem inevitable that one or more individuals will soon “flip” and cooperate with the government thereby potentially complicating the defenses of the remaining individuals.”

Christopher Matthew’s at Main Justice reports this evening (see here) that Daniel Alvirez, the President of ALS Technologies, Inc., is expected to plead guilty to charges of conspiracy to violate the FCPA set forth in a superseding indictment and cooperate in the government’s investigation.

The superseding indictment (here) contains two conspiracy charges. The superseding indictment drops the substantive FCPA violations and conspiracy to commit money laundering charges in the original indictment.

The first charge in the superseding indictment is substantively similar to the conspiracy charge and substantive FCPA charges in the original indictment (here) and involves the same core set of facts as in the original indictment, but with more detail. For instance, the superseding indictment specifically lists the names of the Africa Sting defendants and references specific telephone calls and e-mails. The superseding indictment also newly alleges that Alvirez and others were not in Las Vegas merely to attend the Shot Show, but also “for the purpose of attending a meeting between the suppliers” in the deal and the hypothetical “Minister of Defense of Country A.” According to the superseding indictment, at this meeting Alvirez and others “expected to receive a payment at that meeting amounting to 60% of the inflated sales price” of the goods initially sold in the deal.

The second conspiracy charge in the superseding indictment is new and contains facts not yet alleged in this case concerning the Republic of Georgia.

According to the superseding indictment, Alvirez participated in “conversations and meetings with sales agents who Alvirez knew were making corrupt payments to Ministry of Defense officials of the Republic of Georgia (‘Georgia’) in order to assist in obtaining business from the government of Georgia.” The superseding indictment alleges that “Alvirez would facilitate the sale of military and law enforcement equipment to the government of Georgia, with the assistance of corrupt sales agents, knowing that the sales agents would make corrupt payments to Georgian government officials to assist in obtaining and retaining business from the government of Georgia” and that Alvirez accepted “commission payments from the corrupt sales agents for facilitating the corrupt deals with the government of Georgia.”

The Republic of Georgia charge references an “Israeli sales agent” “an executive of a company that supplied ammunition to facilitate the Israeli sales agent’s purchase (“Co-Conspirator 1”) and “Miami sales agent.”

Unlike the original Africa Sting charge, the Republic of Georgia charge does not mention any involvement by FBI agents and/or a sting.

Matthews quotes an individual familiar with the case who says that “Alvirez is a key part of the widespread conspiracy because he introduced many of the defendants to the government’s cooperating witness, Richard Bistrong, who facilitated meetings between the defendants and the undercover FBI agents.” According to this source, “other defendants were likely to work out plea agreements and that the government is using the cases to go after other defense-industry companies” including “corrupt deals in several specific countries, including the Republic of Georgia and Guatemala.”

Clearly this new development complicates the defense of the remaining Africa Sting defendants and foreshadows a much larger government investigation seemingly not involving the entrapment defense at issue in the original charges.

BAE – The Circus Continues

Just when you think the final circus wagon has left the station, the BAE bribery, yet no bribery circus continues to keep on giving.

As I posted earlier this week (here), debarment issues clearly drove resolution of this prosecution as demonstrated by the DOJ’s sentencing memorandum. That post also noted that the U.S. Attorneys’ Manual specifically states that “where the corporation was engaged in fraud against the government […], a prosecutor may not negotiate away an agency’s right to debar or delist the corporate defendant” – a relevant fact given that both the DOJ release announcing resolution of the BAE matter, as well as the sentencing memorandum, expressly state that BAE “defrauded” the U.S.

Today’s circus act has to do with the magician’s uncanny ability to make things disappear and concerns the State Department’s treatment of BAE’s license applications.

The FCPA Blog today (see here) profiles a DefenseNews article (here) and notes that the” first debarment notice posted on the State Department’s website Monday was withdrawn and a second notice was changed at least once and then also withdrawn.”

Defense News quoted a Washington trade lawyer as saying:

One notice Monday, another one Tuesday, and now they’re both down. Which is it, guys? What State has done sends a terrible message. It makes it seem like State does not have a handle on what it wants to do – or that it’s being manipulated by outside interests.

***

For Christopher Matthews’ (Main Justice) first-hand account of how the judge, prosecution and defense all carefully avoided talking about the FCPA bribery element in the room at Monday’s hearing, see here. Matthews notes that BAE’s lawyer specifically requested “that the record reflect that BAE did not know payments would be used for bribes, only that there was a high probability they might be used in that fashion.”

Save the Date

On March 22nd, the Georgetown Journal of International Law will be hosting a symposium titled “Combating Global Corruption” (see here for details).

Panelists include a collection of FCPA practitioners, industry representatives, academics and enforcement officials. I will be participating on the “Enforcement by U.S. Government Agencies” panel and will be presenting my paper “The Facade of FCPA Enforcement” at this conference.

The event, at Georgetown Law, is free, open to the public, and CLE accreditation has been requested.

BAE – U.K. Court to SFO … Not So Fast!

Yesterday’s post concerned the final act in the BAE circus in the U.S. (see here). As promised, today we venture across the Atlantic to the U.K., a country which has played host to many acts in the BAE bribery, yet no bribery circus.

Yesterday, a U.K. High Court prohibited (see here) the Serious Fraud Office (“SFO”) “from taking any steps in its prosecution of BAE” “until the determination of the application for permission to apply for judicial review or further order.” For press coverage (see here).

Here is the relevant background.

In mid-February, Corner House Research and Campaign Against Arms Trade, two British non-profits, wrote to Richard Alderman, the Director of the SFO, asking him to revoke the plea bargain agreement it had entered into with BAE. (See here and here).

The groups argue “that the Director of the SFO has acted unlawfully as the guidance under which the Director must operate makes clear that once the decision to prosecute has been taken, the charges agreed in any plea agreement must reflect the seriousness of the offending concerned.”

The letter details the SFO’s statements leading up to its February 5th settlement with BAE as well as SFO guidance “specifically designed to apply to plea discussions of the type engaged in by the SFO with BAE” and argues that the SFO’s decision to resolve the BAE matter in the way it did was both “unlawful” and “irrational.”

The SFO guidance relevant to plea negotiations identified in the letter is similar to the factors U.S. prosecutors are to consider in resolving corporate criminal issues pursuant to the Principles of Federal Prosecution of Business Organizations found in the U.S. Attorneys’ Manual (see here).

The SFO refused to reconsider its decision and on February 26th, the groups (see here) “lodged papers at the High Court asking for an injunction (see here) to delay the [SFO] from seeking court approval for its controversial plea bargain settlement with BAE Systems pending the outcome of a Judicial Review.” The groups also “lodged papers requesting the Judicial Review (see here) at the same time.”

By way of summary, the groups:

“contend that the proposed settlement is unlawful because the SFO did not follow the correct prosecution guidance (including its own guidance) on plea bargain;”

“argue that the agreement does not reflect the seriousness and extent of BAE’s alleged corruption, and does not provide the court with adequate sentencing powers; and

“hold that the SFO unlawfully concluded that the factors weighing against prosecuting BAE on bribery and corruption charges outweighted those in favor of prosecution.”

The groups also requested judicial review of the “SFO’s decision to discontinue its prosecution of [BAE’s agent] Count Alfons-Mensdorff-Pouilly.”

As indicated in a prior post (here), the SFO withdrew its filed criminal charges against BAE’s agent days after criminally charging him (presumably based on evidence that the following did indeed occur) with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.”

The Statement of Facts and Grounds in support of the request for judicial review is substantively similar to the above referenced initial letter in that it details the SFO’s statements leading up to its February 5th settlement as well as the SFO guidance “specifically designed to apply to plea discussions of the type engaged in by the SFO with BAE” and argues that the SFO’s decision to resolve the BAE matter in the way it did was both “unlawful” and “irrational.”

According to this release, “[t]he injunction is in force until the Court has decided whether or not to give permission to Campaign Against Arms Trade and The Corner House to apply for a judicial review of the settlement. It will make this decision by March 20, 2010.”

Clearly the “standing” requirements for challenging an agency action in the U.K. are different than in the U.S. Under U.S. law, mere taxpayer status is generally not enough to challenge an agency action, rather a plaintiff must allege unique, personal injury fairly traceable to the conduct at issue. If anyone is conversant on the U.K. standing rules relevant to the SFO challenge, please consider this an invitation for a guest post.

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