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“Can Someone Please Turn On the Lights”

Former U.S. Attorney General Michael Mukasey (here – currently at Debevoise & Plimpton and active in the FCPA reform movement on behalf of the Chamber of Commerce) and James Dunlop (here – Jones Day) recently published “Can Someone Please Turn On the Lights?  Bringing Transparency to the Foreign Corrupt Practices Act” (here).  Published in Engage, a publication of the Federalist Society, the article asserts as follows.

” … [The] unobjectionable vision [of the FCPA] has virtually disappeared in a miasma of aggressive prosecutions by the Justice Department … The FCPA is almost never litigated in court. Public companies are the typical FCPA target, and such defendants are rarely positioned to litigate criminal charges, or even risk indictment, given (among other things) the substantial risk of federal contract debarment in many industries. The same is often true for individuals, most of whom face substantial prison time if convicted and who are thus unwilling to hang their hopes on uncertain interpretive arguments. As a result, the FCPA has had almost no judicial oversight, with the result that corporations trying to comply with its mandates find they are fighting corruption in the dark, their quest for standards confined to making mitigation arguments in prosecutors’ offices. This has enabled the FCPA’s enforcers, the Justice Department, and the Securities and Exchange Commission, to ‘win’ most FCPA cases through plea bargains or settlements, in which regulators set the terms, and into which regulators import their capacious constructions of the FCPA. This regulatory latitude has, in turn, transformed the FCPA into a catch-all for illicit conduct abroad, no matter how removed the target of the enforcement action is from the underlying offense. As Professor Mike Koehler has put it, ‘the FCPA means what the enforcement agencies say it means.'”

The article next states that “because the FCPA will never be heavily litigated—thus depriving the courts of the opportunity to clarify its murky text—Congress must speak clearly about what conduct does and does not violate the FCPA.”  The article then largely tracks the reform proposals originally set forth in the Chamber sponsored white paper “Restoring Balance” (here).

Regardless of your views on FCPA reform, the Mukasey, Dunlop article is well written, extensively footnoted, and should find a place on your reading stack.

Checking in on the Carson Case

This previous post highlighted the Carson defendants recent motion to suppress (here) and motion to dismiss (here).

In substance, the motion to suppress argued that “from the outset of [Control Component Inc’s] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.”  The motion further argued as follows.  “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.”  According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.

Last week the DOJ filed (here) its opposition brief.  In summary, the DOJ asserts as follows.  “Only state actors can violate a defendant’s Fifth Amendment rights, and the evidence shows that the Company’s actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors.”

The government submitted in camera the notes of Mark Mendelsohn, then Deputy Chief of the DOJ’s Fraud Section, reflecting his summary of the Company’s voluntary disclosure and many of the factual issues in dispute concern e-mails between Steptoe & Johnson and Mendelsohn.  As to these e-mails, the DOJ states as follows.  “These e-mails show no nexus between the Company and the government.  Instead, they show a company in cooperative mode informing the government of what is transpiring in its internal investigation.  [….] At no time did the government direct the actions of Steptoe/CCI.  The government did not instruct the company who to interview or what questions to ask.  In fact, the government provided no direction or instruction as to the conduct of the interviews.”

Citing caselaw that purports to show that a company’s efforts to cooperate with the government do not transform it into an arm of the state, the DOJ states that a company’s voluntary disclosure coupled with DOJ policy regarding a company’s cooperative efforts does not equate to state action and that finding state action “on these facts alone would be unprecedented and unwarranted, the effect of which would be to turn the cooperating company into a government agent in every case.  There is no precedent for such an outcome.”

The DOJ also filed last week (here) its opposition to the motion to dismiss which mostly focused on due process / discovery issues.

Common Ground

Recently, Ann Hollingshead, writing on Global Financial Integrity’s (GFI) blog (here), made a spot-on observation regarding the type of “petty corruption” (or what I will call “harassment bribery”) common throughout the world.  Hollingshead stated as follows.

“But this type of corruption is pervasive and deeply entrenched in the culture of many nations. It makes life difficult for citizens trying to live their lives and carry out what should be ordinary tasks. And in many countries—like India for example—where paying a bribe is illegal, the corrupt official forces everyday citizens to choose between completing your transaction and complying with the law. It is in this way that systematic corruption creates both a power imbalance and a forced cooperative between those demanding the bribe and those paying it.” (emphasis added).

I agree and the same is precisely the point I argue in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) as to a specific reason, among others, warranting an FCPA compliance defense.  Like Hollingshead, I too focus on India and note as follows.  “Recent FCPA enforcement actions concerning business conduct in India demonstrate that harassment bribery is common and that companies operating in India face – just as locals face – difficult conditions simply to get things done.”  I further note that “companies seeking to do business in many foreign countries are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through bribe payments condoned in the host country.”

It is encouraging to see that proponents of an FCPA compliance defense and opponents on an FCPA compliance defense seem to at least agree on the business conditions present in many foreign markets giving rise to discussion of an FCPA compliance defense.

Hollinghead’s comments on GFI’s blog would seem drastically different from GFI’s previous statements concerning the general issue.  Previously, in connection with the June 2011 House FCPA hearing, GFI (and others) release a statement (here) that stated as follows.  “If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?”

Basurto Sentenced to Time Served

As detailed in this prior post, Fernando Maya Basurto was charged along with John Joseph O’Shea.  Unlike O’Shea, who decided to put the DOJ to its burden of proof – and when he did he prevailed (see here), Basurto (the principal of the Mexican company that performed work for ABB’s business unit on its contracts with CFE) pleaded guilty.

The DOJ release (here) stated as follows.  “Basurto pleaded guilty …  to a one-count information charging him for his role in the conspiracy.  In his plea, Basurto admitted that while he acted as a sales representative for the Texas business unit, he conspired with others to make corrupt payments to CFE officials, helped launder the bribe monies, and engaged in a cover up to obstruct the investigations of the Department of Justice and the SEC.  Basurto also admitted that he submitted false invoices and helped fabricate correspondence in contemplation of federal investigations into the bribery.”

As part of his plea agreement, Basurto agreed to cooperate with the DOJ in its prosecution of O’Shea and Basurto was a key DOJ  witness at O’Shea’s trial.  However, the presiding judge, Judge Lynn Hughes (S.D. Tex.), stated, in dismissing the FCPA charges against O’Shea, that Basurto knew ” almost nothing” and that his answers “were abstract and vague, generally relating to gossip.”

Last week, Hughes granted the DOJ’s request and sentenced Basurto to time served.  As noted by Christopher Matthews (here – Wall Street Journal Corruption Currents), Basurto was arrested in April 2009 and was released on bail in July 2011, according to court records.

Checking In On The Carson Case

After Judge James Selna (C.D. Cal.) denied the “foreign official” motion to dismiss challenge in the Carson case in May 2011 (see here for the prior post) , the “foreign official” issue moved to the jury instructions – see here and here for prior posts.  Last month, Judge Selna issued an order (here) regarding certain jury instructions.  Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.

As to the “knowledge of status of foreign official,” Judge Selna’s instruction states as follows.

[…..]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.

(6) The payment or gift at issue was intended for at least one of four purposes: a. To influence any act or decision of a foreign official in his or her official capacity; b. To induce a foreign official to do or omit to do any act in violation of that official’s lawful duty; c. To secure any improper advantage; or d. To induce a foreign official to use his or her influence with a foreign government or department, agency, or instrumentality thereof to affect or influence any act or decision of such government, department, agency, or instrumentality;

[…..]

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

*****

As previously noted by the Federal Securities Law Blog (see here), earlier this week, the Carson defendants filed a motion to dismiss (here) and a motion to suppress (here).

In summary, the motion to dismiss states as follows.

“The basis for Defendants’ Motion is that the impact of the cumulative impediments – unique investigation tactics preventing Defendants access to millions of pages of evidence they would normally receive under Rule 16, the lack of a meaningful Brady review, CCI’s loss of crucial documents underlying many of the counts and transactions, the inability of Defendants to obtain foreign documents and subpoena foreign witnesses, CCI instructing its employees not to speak with the defense, many of which are pertinent to the counts and transactions, as well as opaque statutes applied in a novel fashion and failure to provide mandated public awareness – in combination, deprived Defendants’ of their Due Process and Sixth Amendment rights, including the right to present a complete defense, and have prejudiced Defendants to such a severe extent that dismissal is the only appropriate remedy.”

Of note, the motion argues that “from the outset of [Control Component Inc’s] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.”  The motion further argues as follows.  “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.”  According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.

Under the heading “The FCPA and Congressional Efforts for Clarity” the motion states as follows.

“Portions of the FCPA are obscurely written and a key term at issue in this case is the meaning of “instrumentality,” which is not defined in the statute. This Court’s ruling, which involves a non-exclusive, multiple factor test to determine whether a state-owned-enterprise is an “instrumentality,” shows just how complex and unclear the FCPA is. The FCPA’s history reflects Congress’ recognition of the inherent lack of clarity.  Eleven years after Congress enacted the FCPA, Congress adopted amendments via the 1988 Omnibus Trade and Competitiveness Act (“Trade Act”), reflecting an important policy decision: the federal government must make substantial efforts to inform the public about the FCPA. Congress, therefore, required the Attorney General (“AG”) to consult with various federal agencies and departments; obtain the views of interested persons through a public notice and comment procedure; determine based on this combined input “to what extent” FCPA compliance would be enhanced and the business community assisted by further clarification of the FCPA; and then, based on this determination, issue guidelines illustrating allowable and prohibited conduct, clarify Department of Justice’s (“DOJ’s”) enforcement policies and generate precautionary procedures to aide in compliance. The AG’s compliance with Congress’ directive has been minimal.”  [For more on this issue, see this prior guest post].

The motion also asserts that CCI “directed employees not to talk with defense counsel.”  The motion states, in pertinent part, as follows.  “Had the government directly instructed witnesses not to speak with the defense, or even to do so only in the prosecution’s presence, such conduct would violate Defendants’ constitutional right to present a defense.” […] The same constitutional principle should apply here, given CCI cooperated in the government’s investigation, including by sharing witness specific information. […]  Steptoe’s actions against [a former Regional Sales Manager in Asia]  and possibly others would constitute government intimidation of a witness if this Court finds CCI was an agent of the government, which clearly would violate Defendants’ Fifth and Sixth Amendment rights.”

Elsewhere, the motion states as follows.  “Defendants were responsible for oversight of significant international business, yet IMI/CCI provided no FCPA training.”

In summary, the motion to suppress states as follows.

“The basis for this Motion is that CCI and its counsel were de facto public actors when they implicitly threatened to terminate Defendants’ employment if they did not cooperate and participate in interviews with CCI’s investigators. At the time of the interviews, CCI and IMI were not only in contact with law enforcement authorities regarding the investigation, but were collaborating with the Department of Justice (“DOJ”) in how to conduct the investigation and obtain relevant admissions from the Defendants. CCI compelled the Defendants’ statements with the government’s knowledge, certainly at a minimum with the government’s general encouragement, and with the intent to cooperate with the DOJ. As a matter of fact and law CCI was an agent of the government during the interviews. Thereafter and further to published DOJ memoranda, CCI spared no expense in cooperating with the government by identifying purported culprits and disclosing the fruits of its investigation, including interviews of the Defendants, to the DOJ. Thus, CCI’s actions are “fairly attributable to the government.” CCI compelled the Defendants’ statements under a classic “penalty situation” – CCI required them to answer all questions regardless of their Fifth Amendment right against self-incrimination or be fired. Because CCI was a state actor when it compelled the Defendants’ statements, it violated their Fifth Amendment rights and the statements must be suppressed.”

Judge Selna Appears Ready To Deny Carson Travel Act Challenge

Last Friday prior to oral argument on the motion, Judge James Selna (C.D. of Cal.) – as is often his custom – publicly released (here) his tenative ruling on the Carson defendants’ Travel Act motion to dismiss.  As detailed in this prior post, the defendants, among other things, argued that the Travel Act does not apply extraterritorially.  As detailed in this post, the DOJ in opposition argued, among other things, that because the majority of defendants’ unlawful conduct was based in the U.S. resort to extraterritorial application was not necessary and even if it was  the plain language of the Travel Act, the legislative history, and case law all indicate that the Travel Act does apply extraterritorially.

In his tenative ruling, Judge Selna denied defendants’ motion to dismiss.  In sum, Judge Selna tenatively concluded that: (1) “an extraterritorial analysis is unnecessary because the criminal offense was completed domestically, and (2) even if an extraterritorial analysis is implicated, the Travel Act counts are proper.”  As to (1), Judge Selna stated as follows.  “All the elements under the Travel Act were allegedly satisfied in California even if the target of Defendants’ commercial bribery scheme was overseas” thus making an extraterritorial analysis “unnecessary.” 

As to (2) above, an issue of greater big picture importance, Judge Selna stated as follows.   “… [C]riminal statutes may apply extraterritorially even without an explicit Congressional statement. In deciding whether criminal statutes apply extraterritorially, courts ‘must consider the language and function of the prohibition.’  […]  The Court agrees with the Government that ‘plain language of the Travel Act demonstrates Congress’s desire to reach conduct overseas.'”  

As to defendants’ position that “the subsequent enactment of the FCPA provides a clear inference that the Travel Act was not intended to apply extraterritorially,” Judge Selna disagreed and stated that “multiple criminal statutes can often be applied to the same criminal conduct” and he did “not discern any conflict between the Travel Act and the FCPA.”  Judge Selna also rejected defendants’ void-for-vagueness challenge.

Friday Roundup

The Lindsey defendants argue that “repeated and intentional government misconduct” requires dismissal of their jury convictions, a nondescript Commerce Department statement regarding the July 22nd FCPA Business Roundtable, a World Bank service opportunity, there is now competing FCPA insurance products, Ethisphere launches its Anti-Corruption Resource Center, and the DOJ’s Travel Act opposition brief in Carson … its all here in the Friday Roundup.

Lindsey Supplemental Motion to Dismiss Based on Government Misconduct

A previous post (here) asked whether the Lindsey convictions were hanging by a thread and summarized the June 27th hearing on defendants’ prosecutorial misconduct motion during which Judge Matz made some rather damning comments concerning the DOJ’s first-ever corporate FCPA jury trial verdict. Earlier this week, Lindsey Manufacturing, Keith Lindsey and Steven Lee filed a “Supplemental Brief In Support of Motion to Dismiss the Indictment With Prejudice Due to Repeated and Intentional Government Misconduct” (see here and here in two parts).

Highly factual, the brief begins as follows. “The investigation and prosecution of this case were permeated with instances of purposeful, prejudicial government misconduct. The government’s misconduct was patent and pervasive, designed to win the case, not do justice.” Counsel for Lindsey Manufacturing and Keith Lindsey, Jan Handzlik (Greenberg Traurig – here) stated as follows. “Considered individually or on a cumulative basis, the government’s conduct was extraordinarily damaging. We believe this unfair prejudice should result in a dismissal.”

The Lindsey case was profiled in a July 22nd Wall Street Journal article which detailed how “the Justice Department is grappling with a string of high-profile blunders that have prompted stinging rebukes from judges.” Interestingly, the WSJ did not profile the recent mistrial in the DOJ’s high-profile Africa Sting case (see here for the prior post).

As to the Africa Sting case, this recent post from the Blog of Legal Times detailed a hearing earlier this week in the case during which the DOJ said it “wants to retry the first four defendants before any of the other trials.”

Commerce Department Statement Regarding the July 22nd Business Roundtable

On July 22nd, the Commerce Department hosted, along with Assistant Attorney General Lanny Breuer and SEC Enforcement Director Robert Khuzami, a business roundtable on the Foreign Corrupt Practices Act. The statement (here) released yesterday by Cameron Kerry (Commerce Department General Counsel)  stated as follows. “Over twenty company representatives from a wide range of business sectors, sizes, and geographic locations participated. Participants were recommended by business associations with an interest in this area. We engaged in an open and constructive dialogue and many participants noted that U.S. business and the government must work together to fight international bribery and corruption in order to uphold the rule of law and support human rights. We heard an array of concerns, complaints, and compliments about the statute, its enforcement and related guidance, and I was encouraged by the large turnout, the frank conversation, and the clear dedication of all participants to address the corrosive impact of corruption on international commerce.”

World Bank Sanctions Board Vacancies

The World Bank Sanctions Board is comprised of four external members and three internal (World Bank staff) members. The World Bank is inviting applications and nominations for the positions of two Sanctions Board members to be selected from among non-Bank staff. To learn more see here.

Additional FCPA Insurance Option

A prior post (here) noted that an insurance company (Chartis ) has begun offering Foreign Corrupt Practices Act insurance and how this development only confirmed that FCPA Inc. has become a full-fledged industry in and of itself. Recently, Marsh also launched (here) its own FCPA insurance product. As described in the company’s brochure, “FCPA Corporate Response” – “reimburses companies for investigation costs including legal, accounting, auditing, and consulting fees due to an FCPA claim;” “provides coverage for both the organization and individuals for FCPA investigations;” and “acts as primary insurance to a directors and officers (D&O) liability policy to immediately protect individual directors and officers.” The insurance also covers investigations under the U.K. Bribery Act as well.

Ethisphere Launches Anti-Corruption Resource Center

Earlier this week, Ethisphere (a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability) launched its Anti-Corruption Resource Center – see here for the release. A mix of freely accessible and password protected information, the Anti-Corruption Resource Center contains, among other things, various article regarding FCPA and compliance topics, a schedule of upcoming FCPA conferences and events.

DOJ’s Travel Act Opposition Brief

A prior post (here) discussed certain of the Carson defendants motion to dismiss Travel Act charges based on alleged bribes to employees of private companies located in China and Russia. Among other things, defendants argued that the Travel Act has no foreign application.

Recently, the DOJ filed (here) its opposition brief. According to the DOJ, “[b]ecause the majority of defendants’ unlawful conduct was based in the United States, the statutes at issue [the Travel Act and California’s commercial bribery statute] reach defendants’ conduct without any resort to extraterritorial application.” As stated by the DOJ, “defendants S. Carson, R. Carson, Cosgrove, and Edmonds were all U.S. citizens and served as executives at CCI’s headquarters in Rancho Santa Margarita, California” and a “significant portion of the four defendants’ acts in furtherance of the conspiracy occurred either in the United States or through communications with individuals in the United States.” The DOJ further argued as follows. “Although the Court need not consider the question of whether the Travel Act applies extraterritorially, the plain language of the statute, the legislative history, and the case law all indicate that the Travel Act does apply extraterritorially.”

*****

A good weekend to all.

“Foreign Official” Action Abounds in Carson Proposed Jury Instructions

A prior post (here) detailed how the Carson “foreign official” challenged moved to the jury instruction and the post summarized the defendants’ and the DOJ’s dueling jury instructions.

On Monday, both sides filed (here) and (here) objections to each others jury instructions and this post provides an overview.

Defendants

As discussed in the prior post, the DOJ’s proposed jury instruction stated, in full, as follows.

“The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

An “instrumentality” of a foreign government is any entity through which a foreign government achieves an end or purpose, and can include state-owned entities. In determining whether an entity is an instrumentality of a foreign government, you should consider the following:

(1) the circumstances surrounding the entity’s creation;

(2) the foreign government’s characterization of the entity and the entity’s employees, and whether the entity is widely perceived and understood to be performing official (i.e., governmental) functions;

(3) the foreign government’s control over the entity, including the foreign government’s power to appoint key directors or officers of the entity;

(4) the purpose of the entity’s activities, including whether the entity provides a service to the citizens of the jurisdiction;

(5) the entity’s obligations and privileges under the foreign country’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;

(6) the extent of the foreign government’s ownership of the entity, including the level of financial support by the foreign government (e.g., subsidies, special tax treatment, and loans)

These factors are not exclusive, and no single factor is dispositive. In addition, in order to conclude that an entity is an instrumentality of a foreign government, you need not find that all of the factors listed above weigh in favor of such a determination.”

In sum, defendants objected as follows. “Significant portions of the Indictment in this case may survive or fall based upon the jury’s ultimate conclusion regarding whether the specific state-owned enterprises (“SOEs”) identified in the substantive FCPA counts qualify as government ‘instrumentalities’ under the FCPA and their employees ‘foreign officials.’ Yet rather than propose a jury instruction that sets forth a clear legal yardstick against which this central factual determination must be measured, the government instead proposes a vague and amorphous ‘foreign official’ and ‘instrumentality’ jury instruction that (1) is legally incorrect, and (2) provides no concrete guidance to the jury to intelligently determine which SOEs qualify as ‘instrumentalities’ and which do not.”

Taking aim at the DOJ’s proposed instruction that an “instrumentality of a foreign government is any entity through which a foreign government achieves an end or purpose,” defendants argue that “foreign governments achieve an ‘end’ or ‘purpose’ through virtually every business enterprise operating in their countries since those enterprises employ workers, pay taxes, and engage in myriad other activities that are beneficial to those governments.”

Defendants further assert that “foreign governments also achieve an ‘end’ or ‘purpose’ through every private company they hire or contract with, such as engineering, procurement, and constructions firms, law firms, information technology firms, and the like” and that “every company that sells a product or service to a foreign government helps that government achieve an end or purpose…”. Defendants maintain that “adopting the government’s proposed instruction […] would place no practical limits on the definition of ‘instrumentality.'”

Defendants further argue that the DOJ’s “end” or “purpose” test “has no grounding in the text of the statute or the statute’s legislative history” and “now that the issue is being actively litigated […] the government has cherry-picked the most expansive dictionary definition possible.” However, defendants state, “the government can point to no evidence – and there is no evidence – that Congress ever intended such an expansive definition of the term” – “in fact all of the evidence is to the contrary.”

In addition, defendants argue that “the government’s proposed instruction does not provide adequate guidance to the jury to intelligently determine whether a particular SOE is or is not a foreign government ‘instrumentality.”” Defendants maintain that the DOJ’s “instruction is devoid of a clear benchmark that must be met before the jury may conclude that the government has satisfied its burden to prove beyond a reasonable doubt that a particular SOE is a foreign government ‘instrumentality’ under the FCPA” and that “such a vague, amorphous, and standardless instruction cannot be permitted.” For instance, in discussing certain of the “proposed factors” in the DOJ’s instruction, defendants state as follows. “… factor 1 tells the jury to consider ‘the circumstances surrounding the entity’s creation,’ but it never explains precisely what circumstances the jury should consider and how those circumstances are relevant to the ‘instrumentality’ inquiry.” “Similarly,” defendants state, “factor 2 instructs the jury to consider, among other things, ‘whether the entity is widely perceived and understood to be performing official (i.e. governmental) functions.” However, defendants ask – “perceived and understood by whom” – “the citizens of that country” “the defendants” “the Department of Justice” – “the government’s instruction does not say.”

DOJ

In sum, the DOJ states that the “Court should reject the defendants’ proposed ‘instrumentality’ instruction primarily because it contradicts this Court’s prior ruling on the defendants’ motion to dismiss the indictment. For a copy of that ruling – see here. Elsewhere, the DOJ states that “the defendants have proposed a convoluted and flawed ‘instrumentality’ instruction that […] ignores and contradicts this Court’s May 18 holding and supporting analysis.”

The DOJ argues that defendants proposed instruction “appears designed solely to limit as much as possible the number of entities in the world that might qualify as foreign government instrumentalities” and that it “should be rejected for several reasons.” “First,” the DOJ asserts, “the defendants cite no authority whatsoever for such an all-or-nothing approach.” “Second, the proposed instruction is in direct contravention of this Court’s recent opinion …”. “Third, adopting the defendants’ profoundly prescriptive definition approach would lead to absurd results, even in the United States” and the DOJ asks “is the United States Postal Service not an instrumentality of the United States government merely because the Postal Service seeks to maximize profits?”

In response to the portion of defendants’ proposed instruction that states – “to conclude that a business enterprise is an “instrumentality” of a foreign government, you must conclude beyond a reasonable doubt that the business enterprise is part of the foreign government itself” – the DOJ states that this “proposed jury instruction is not grounded in existing case law, but instead reflects the defendants’ desire for a whole-scale revision of the FCPA.” In a phrase that some may want to keep handy for future reference, the DOJ then states as follows. “But contrary to the defendants’ suggestion, only Congress has the power to re-write a statute.” (emphasis added).

A portion of defendants’ proposed instruction stated as follows. “A business enterprise is not a foreign government instrumentality if it is a mere subsidiary of a state-owned company. To qualify as a foreign government instrumentality, the business enterprise must, as set forth above, be directly and majority owned by the foreign government itself. Therefore, an employee of a business enterprise that is merely a subsidiary of another entity that is majority owned by the foreign government is not an employee of a foreign government instrumentality and is not a “foreign official.””

In reply, the DOJ stated as follows. “Simply put, if the entity qualifies as a foreign government instrumentality, it should make no difference where in the corporate chain that entity might sit.” (emphasis added). Elsewhere, the DOJ asserts that “application of the Court’s factors – especially ‘the foreign government’s control over the entity’ and “the extent of the foreign government’s ownership of the entity’ – are likely to result in findings that subsidiaries low ‘in the corporate chain’ […] are not instrumentalities.”

A portion of defendants’ proposed instruction stated as follows and cited OECD Convention Commentary 15 in support. “A business enterprise that operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, is not a foreign government instrumentality, and its employees therefore are not “foreign officials.””  The DOJ  has pledged allegiance to the OECD Convention throughout the “foreign official” challenges (and elsewhere when it serves its interest -see here for a prior post),  but it has consistently avoided discussion of Commentary 15.   Responding to Commentary 15, the DOJ states as follows:  “… the government did not argue in its motion response that every aspect of the OECD Convention should be incorporated into the definition of ‘instrumentality'”.

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