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.
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.
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.