By most measures, there are 193 countries in the world.
According to the 11th Circuit’s recent “foreign official” ruling (see here ), the FCPA’s key “foreign official” element can have 193 different meanings.
As previously highlighted , the key language from the opinion is 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.”
In sum, the key concepts according to the 11th Circuit in analyzing whether a seemingly commercial enterprise is in fact an “instrumentality” of a foreign government such that its employees are “foreign officials” are control and function.
Yet how is a business organization competing in good-faith in the global marketplace supposed to find answers to these concepts?
The 11th Circuit thinks it will be easy as the court stated:
“We think it will be relatively easy to decide what functions a government treats as its own in the present tense by resort to objective factors, like control, exclusivity, governmental authority to hire and fire, subsidization, and whether an entity finances are treated as part of the public fisc. Both courts and businesses subject to the FCPA have readily at hand the tools to conduct that inquiry (especially because the statute contains a mechanism by which the Attorney General will render opinions on requests about what foreign entities constitute instrumentalities.”
However, is it really that easy?
I trouble to envision a general counsel or chief compliance officer of a company charged with approving expenditures of things of value in connection with a business purpose (and let’s face it, companies do this all the time in the global marketplace as to certain customers and prospective customers) ever finding answers to certain issues identified by the 11th Circuit as being relevant.
The 11th Circuit’s suggestion to the contrary is somewhat comical. Does the 11th Circuit envision the following?
- General Counsel / Chief Compliance Officer: Pardon me Company A, can you tell me how your principals are hired and fired?
- General Counsel / Chief Compliance Officer: Excuse me Company B, but do your profits go directly into the government fisc? A follow-up if I may – does the government subsidize your operations? And if so, for how long?
As to the FCPA’s Opinion Procedure program, seemingly lost on the 11th Circuit is that it often takes months for a business organization to receive an answer from the DOJ. For this reason, among others, the FCPA Opinion Procedure program has been routinely criticized. As noted in the OECD’s 2010 review of FCPA enforcement :
“So far, the FCPA Opinion Procedure has been used very little by the private sector to obtain DOJ advice on prospective transactions. […] The non-governmental participants in the on-site meetings cited several reasons for the infrequent use of the Opinion Procedure. For instance, legal and private sector representatives felt that the Opinion Procedure is only useful in limited situations where the prospective fact situation is narrow and not going to change. They also find that the response time, which is 30 days after the request is complete, is too long in certain situations, such as entering joint ventures and mergers and acquisitions, where a company normally needs to make decisions relatively quickly. […] The most pervasive concern of the private sector representatives was that availing themselves of the Opinion Procedure could expose them to potential enforcement actions by the DOJ, as well as provide competitors with information about their prospective international business activities.”
Moreover, 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.
For instance in Release 94-01  the Requestor disclosed that its “foreign attorney has advised that under the nation’s law, the individual [at issue] would not be regarded as either a government employee or a public official.” However, the DOJ stated that “the foreign attorney’s opinion is not dispositive” and the DOJ “considered the foreign individual to be a ‘foreign official’ under the FCPA.”
Even the 11th Circuit noted that it will 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.”
Yet, the end-result of the 11th Circuit’s decision is that “foreign official” – a key element of the FCPA – may mean 193 different things.
Some may be thinking that this entire post has been wasted ink because the meaning of “foreign official” matters only to those intent on engaging bribery. Such a position is off-base as the meaning of “foreign official” matters for a number of reasons as will be explored in a future post.