“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'”.
Bribery Is Not A First Amendment Issue, But News Corp’s Potential FCPA Liability Does Shine A Needed Light On The FCPA’s Current Era
[On July 20th, the Wall Street Journal published an Op-Ed (here) by David Rifkin and Lee Casey concerning the FCPA implications of the News Corporation scandal titled “Payments and News-Gathering: The New First Amendment Threat.” I drafted and submitted to the WSJ a piece that, in part responded to certain of the FCPA assertions made by Rivkin and Casey, and in other respects sought to further inform the public discussion concerning News Corporation’s potential FCPA exposure and more broadly the current era of FCPA enforcement. The WSJ declined to publish the piece and it thus appears below – modified slightly to conform to the typical postings on this site]
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One aspect of the growing News Corporation scandal concerns the Foreign Corrupt Practices Act (“FCPA”) given the allegations that News Corporation employees and agents may have provided cash or other things of value to London police officers to obtain non-public information that better allowed News Corporation entities to publish stories and thus sell more newspapers.
Based on these allegations and revelations, calls by certain U.S. senators for an FCPA investigation of News Corporation find firm support given how the Department of Justice and the Securities and Exchange Commission have aggressively interpreted the FCPA during the past decade of its resurgence. (See here for a prior post).
Yet, recently in a WSJ Op-Ed, David Rivkin (here) and Lee Casey (here), commenting on the FCPA implications of the News Corporation scandal, made the senseless assertion that the First Amendment makes an FCPA inquiry of News Corporation “inappropriate” because the “the FCPA was certainly not intended to police news-gathering .”.
In passing the FCPA in 1977, Congress clearly demonstrated a capability of creating certain exceptions. For instance, the FCPA has always contained a limited national security exception for conduct engaged in pursuant to a specific, written directive of the head of any Federal department or agency pursuant to Presidential authority to issue such directives. However, having analyzed the FCPA’s entire legislative history (including thousands of pages of Congressional hearing transcripts, Congressional floor statements, texts of competing bills, and Executive agency documents and statements – see here for more) I can say that there is no basis to suggest that Congress sought to exclude the media industry from the FCPA’s prohibitions.
Nor should the media industry be excluded from FCPA scrutiny if its news gathering methods include paying bribes to “foreign officials” to obtain information. Few would suggest that the media industry would be excluded from criminal liability if its news gathering methods include assault and battery of sources to obtain information. The same logic and reasoning applies when news gathering is facilitated through the payment of bribes.
Even though Rivkin and Casey are off-base with their First Amendment assertion, they do correctly state that “since the late 1990’s […] the Securities and Exchange Commission and the U.S. Department of Justice have begun applying the law ever more broadly – to conduct that has little connection to obtaining government contracts or other government benefits, such as product approvals, permits or licenses.” Likewise, a recent WSJ editorial (here) also correctly stated that the FCPA “has historically been enforced against companies attempting to obtain or retain government business” but that “U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement.”
The intense media coverage of New Corporation’s potential FCPA exposure has succeeded in raising two distinct, yet equally important questions, as to the FCPA’s current era of enforcement. The first question is whether – given the DOJ and SEC’s current enforcement theories – the London police officer payments can expose News Corporation to FCPA liability. That answer is yes and the First Amendment, for the reasons stated above, is not relevant to this question. The second question is whether Congress intended the FCPA to apply to the numerous FCPA enforcement actions (actions typically resolved through non-prosecution and deferred prosecution agreements and thus subject to little or no judicial scrutiny) in this new era that have nothing to do with obtaining or retaining foreign government contracts.
This is a valid and legitimate question and the same question could also be asked as to many other current FCPA enforcement theories. For instance, in the FCPA’s decade of resurgence, a significant percentage of FCPA enforcement actions do not involve foreign government officials. Rather, the “foreign officials” at issue are alleged employees of state-owned or state-controlled enterprises (such as procurement managers and project engineers) and thus employees of alleged “instrumentalities” of a foreign government. This common enforcement agency position, even as to commercial enterprises in which a foreign state holds merely a minority interest, is the functional and substantive equivalent of alleging that General Motors and American International Group are “instrumentalities” of the U.S. government and that all GM and AIG employees are therefore U.S. “officials.” The enforcement agencies frequently assert this position even though there is no express statement or information in the FCPA’s extensive legislative history to support the position.
In “The Façade of FCPA Enforcement” recently published by the Georgetown Journal of International Law (see here) and in my other writings I have extensively profiled how the FCPA has frequently come to mean whatever the enforcement agencies say it means and how the FCPA has morphed into an all-purpose corporate ethics statute. The issue is not whether payments to London police officers to obtain information or to employees of commercial enterprises with a dint of foreign government ownership are ethical – few would suggest they are. Rather the issue is whether such payments are what Congress intended to regulate when it passed the FCPA. If Congress desires an all-purpose corporate ethics statute vs. a limited foreign bribery statute that is a decision for Congress to make – not for the enforcement agencies to make via its charging decisions that are largely insulated from judicial scrutiny.
News Corporation’s potential FCPA exposure based on current DOJ and SEC enforcement theories has succeeded in focusing greater attention on this new era of FCPA enforcement and that is a good thing and in the public interest for this dialogue to continue.
Carson “Foreign Official” Challenge Moves To Jury Instructions
On May 18th, U.S. District Court Judge James Selna (C.D. Cal.) denied the Carson “foreign official” challenge and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” (See here for the prior post).
In connection with his pre-trial ruling, Judge Selna ordered the parties to submit their proposed “instrumentality” jury instructions and legal support by June 30th.
Last Thursday, the Carson defendants and the DOJ filed such proposed jury instructions and legal support. See here and here. This post summarizes the dueling jury instructions.
Defendants
Before proposing jury instructions, defendants stated as follows.
“Defendants respectfully disagree with the Court’s May 18 Order denying their Motion to Dismiss (“the May 18 Order”) and continue to believe, as set forth in their Motion to Dismiss (the “Motion”) and the supporting Declaration of Professor Michael J. Koehler, that the FCPA does not criminalize payments made to employees of state-owned enterprises (“SOEs”). Defendants reserve all of their rights to challenge the May 18 Order, if necessary, on appeal. Were it not for the existence of the Court’s May 18 Order, Defendants would propose a jury instruction that states that “a state-owned enterprise is not a foreign government instrumentality within the meaning of the FCPA, and officers and employees of a state-owned enterprise therefore are not ‘foreign officials’ under the FCPA.” But given the existence of the Court’s May 18 Order, and without waiver of their right to challenge all aspects of that Order on appeal, Defendants herein propose a jury instruction that accepts the Court’s premise that “state-owned companies may be considered ‘instrumentalities’ under the FCPA, but whether such companies qualify as ‘instrumentalities’ is a question of fact.”
In preparing their proposed “instrumentality” jury instruction, defendants were “guided by three overarching principles.”
“First, it will not be sufficient to merely provide the jury with a list of nonexclusive, unweighted factors – none of which is dispositive – and ask the jury to “figure it out,” as the government seems to suggest. That will provide the jury with no real standard for making an “instrumentality” determination and will be tantamount to giving the jury no instruction at all on the “instrumentality” issue.”
“Second, in determining an appropriate jury instruction, the Court should not accept any invitation from the government to borrow wholesale from an “instrumentality” analysis used under another statute – such as the “organ” prong of the Foreign Sovereign Immunities Act (“FSIA”), a provision the government highlighted at the hearing on Defendants’ Motion. […] The FSIA may provide some guidance (indeed, Defendants have had to consult FSIA case law, because the FCPA legislative history is devoid of any discussion of SOEs as “instrumentalities,” much less any discussion of which SOEs qualify and which do not qualify), but because it is a different statute than the FCPA – the FSIA is a civil statute aimed at determining, inter alia, when a foreign entity will be considered to be part of a foreign government for purposes of sovereign immunity – its applicability to interpreting the “instrumentality” provision of the FCPA, a criminal statute that by definition must be strictly construed, is necessarily limited.”
“Third, in determining the correct “instrumentality” jury instruction, the goals and structure of the FCPA must be considered. The FCPA is aimed at combating foreign bribery, but it is not a general commercial anti-bribery statute. Rather, the FCPA is aimed at preventing the special harm caused by the bribery of foreign government officials. Accordingly, Congress criminalized payments only to a “foreign official,” a term expressly and narrowly defined in pertinent part as an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The Court should provide the jury with an “instrumentality” instruction that accurately reflects Congress’s desire to criminalize payments made to foreign government officials, not payments made to employees of a company that is not, in both form and substance, actually part of the foreign government.”
The proposed jury instruction then states, in full, as follows.
“The FCPA does not criminalize all payments made to foreign nationals, but only corrupt payments made to a “foreign official.” Therefore, in order for a defendant to be found guilty of an FCPA violation, the government must, among other things, prove beyond a reasonable doubt that the intended recipient of the corrupt payment at issue was a “foreign official” at the time of the alleged payment.
The term “foreign official” means 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 any such government or department, agency, or instrumentality.
A “state-owned” business enterprise may, under certain circumstances, qualify as an “instrumentality” of a foreign government. On the other hand, not all “state-owned” business enterprises qualify as “instrumentalities” of a foreign government. It is up to you to determine, weighing all of the evidence, whether a particular business enterprise is or is not an “instrumentality” of a foreign government, and whether the officers and employees of that enterprise therefore are – or are not –“foreign officials” under the statute.
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. In order to conclude that a business enterprise is part of the foreign government itself, you must find that the government has established, beyond a reasonable doubt, each of the following four elements:
First, the foreign government itself directly owns at least a majority of the business enterprise’s shares.
Second, the foreign government itself controls the day-to-day operations of the business enterprise, including the appointment of key officers and directors (who themselves may be government officials); the hiring and firing of employees; the financing of the enterprise through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties; and the approval of contract specifications and the awarding of contracts.
Third, the business enterprise exists for the sole and exclusive purpose of performing a public function traditionally carried out by the government. A “public function” is a function that benefits only the foreign government (and its citizens), not private shareholders. A business enterprise that exists to maximize profits rather than pursue public objectives does not perform a public function and therefore is not a foreign government instrumentality.
Fourth, employees of the business enterprise are considered to be public employees or civil servants under the law of the foreign country.
If the government fails to prove each of these four elements beyond a reasonable doubt for the “state-owned” business enterprise at issue in a particular count, and therefore fails to prove that the intended recipient of the alleged corrupt payment was a “foreign official,” you must find the defendant “not guilty” on that count.
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.”
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.”
DOJ
The DOJ’s proposed jury instruction states, 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.”
The U.K. Bribery Act Goes Live
At the time of this post, the U.K. Bribery Act has been live for about ten hours, yet there has not been an enforcement action. Given that the Act is not retrospective and applies only to bribes paid after July 1st, this is hardly surprising, but I hope you appreciate the Friday humor.
U.K. corporates and others subject to the Bribery Act are doing business around the world, including in high-risk jurisdictions, and a healthy dose of corporate hospitality is no doubt occurring at Wimbledon. In other words, the world has not changed.
Today, of course, is the day the U.K. Bribery Act finally goes live.
As explained is this U.K. Ministry of Justice circular, “the Bribery Act replaces the offences at common law and under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 (known collectively as the Prevention of Corruption Acts 1889 to 1916) with a new consolidated scheme of bribery offences.”
The FCPA-like provision of the Bribery Act is Section 6 described in the circular as follows. “Section 6 is designed to deal with the corruption of decision making in publicly funded business transactions through the personal enrichment of foreign public officials by those seeking business opportunities. The offence is committed where a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of his or her official functions. There must also be an intention to obtain or retain business or a business advantage on the part of the perpetrator. However, the offence is not committed where the official is permitted or required by the applicable written law to be influenced by the advantage.”
As to corporate liability, the circular states as follows. “The Bribery Act includes a new form of corporate criminal liability where there is a failure to prevent bribery perpetrated on behalf of a “relevant commercial organisation” (Section 7). This new corporate liability for bribery […] does not in any way change the existing common law principle governing the liability of corporate bodies for criminal offences that require the prosecution to prove a fault element or ‘mens rea’ in addition to a conduct element. This common law principle, sometimes referred to as the “identification principle”, will therefore continue to operate so that where there is evidence to prove that a person who is properly regarded as representing the “directing mind” of the body in question possessed the necessary fault element required for the offence charged the corporate body may be proceeded against.”
As to the Section 7 offense, the circular states as follows. “The offence at section 7 of the Act creates a new form of corporate criminal liability. The offence applies only to a “relevant commercial organisation” as defined at section 7(5) and focuses on a failure by such an organisation to prevent a person “associated with” it from committing a section 1 or 6 bribery offence in order to obtain or retain business or an advantage in the conduct of business for that organisation. It creates direct rather than vicarious liability and its commission does not amount to the commission of a substantive bribery offence under section 1 or 6. A commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place designed to prevent persons associated with it from bribing.”
As Michael Volkov (here) nicely stated – “The longest pre-game show in history is drawing to a close. The new world will shortly be upon us. Will the UK Bribery Act be a game-changer or will it fizzle out like Y2K? Everyone has their predictions; everyone has their focus and emphasis.”
Here is my two cents.
As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.
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See here for the text of Richard Alderman’s (Director of the U.K. Serious Fraud Office) recent speech on the Bribery Act.
In a signature departure from U.S. enforcement policy concerning merger and aquisition issues, Alderman stated as follows. “I know that there are many occasions when an acquiring company takes over a target company and discovers either before or after the event that there are serious problems about corrupt activities in the target company. My view is that when an ethical acquiring company identifies these issues, then it is in everyone’s interest that that acquiring company gets on and sorts out the problems that it has inherited. I have difficulty in seeing that any SFO investigation at the corporate level would be justified although I would have to consider carefully the position of any individuals.” (As highlighted in this recent post, several FCPA enforcement actions have been based on successor liability theories).
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In this speech, Alderman stated the following regarding the “foreign public official” term in the Bribery Act.
“Who then is a foreign public official? This is the subject of litigation at the moment in the US and I am following this with interest. The test I use is one that was set out by the OECD in the commentary on the OECD Convention. What we look at is whether or not the foreign State is in a position to influence the foreign company. We therefore look at the relationship between the company and the State to see whether effectively this commercial organisation is being run by the State. This can lead us into some tricky areas. We have received questions about banking officials in countries where the State has a very major interest in the Bank and exercises that interest very actively. Are those officials foreign public officials? Our view is that in those circumstances the individual is likely to be a foreign public official. On the other hand if the State has a major interest but does not control the operations of the Bank, then I think we could have a different situation.”
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Keeping with today’s U.K. theme, earlier this week Bloomberg reported (here) that the SFO is assisting the SEC “on inquiries involving financial institutions and whether bribes were paid in transactions with sovereign wealth funds.”
As previously reported by the Wall Street Journal (see here) the SEC is “examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya’s sovereign wealth fund.” The SFO’s inquiry appears to be related to HSBC Holdings Plc’s interactions with Libya’s sovereign wealth fund.
Other financial services firms that have reportedly received letters of inquiry from the SEC include Bank of America, Morgan Stanley, and Citigroup.
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A good holiday weekend to all.
Mission Creep At The SEC?
Today’s post is from Bruce W. Bean (Professor and Director, LLM Program at Michigan State University College of Law – here).
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Last week FCPA Professor had a post (see here) describing the SEC’s internal search for the new Head of the Division of Enforcement’s FCPA Unit.
As previously reported (see here), Cheryl Scarboro, Head of the Commission’s FCPA Unit, will shortly join the Washington, D.C. office of Simpson Thacher.
The internal SEC marketing materials for this position state that this “Unit seeks to expand the Commission’s global reach in this area by executing targeted sweeps and sector-wide investigations, identifying systemic practices that give rise to potential FCPA violations and aggressively enforcing anti-bribery statutes.”
“[E]xpand the Commission’s global reach?” We do not find this concept in the FCPA. Nor is it in the original Securities Exchange Act that established the SEC. Has the Commission really run out of legitimate domestic prosecution targets? Does the Commission actually believe that, having long ignored stock manipulation by Wall Street traders (who can afford to mount a vigorous defense), it should declare victory in the domestic equities markets, shout “Mission Accomplished” and move on to police the rest of the world?
The most revealing aspect of this internal job posting for the new Head of the FCPA Enforcement Unit is this sentence, which encapsulates the SEC’s jurisdictional philosophy. “The Unit selects cases that present unique legal, evidentiary and policy challenges and attempts to develop case law and legal precedent that will have the greatest deterrent impact on conduct that violates the FCPA.”
Certainly “unique legal, evidentiary and policy challenges” are presented each time we have the Commission stretch and distort the language of the FCPA as it “attempts to develop case law.” For example, there is no FCPA language supporting the determination that millions of Chinese employees at State-Owned Enterprises are “foreign officials.” Similarly, we search in vain for the statutory basis for FCPA liability for a foreign company whose foreign subsidiary committed an act which the prosecutor claims violates the FCPA.
This newly developed FCPA “case law,” of course, is largely created by the enforcement attorneys. (See here for a prior post on “prosecutorial common law”). It is seldom fully litigated before the Judicial Branch. After all, few defendants can afford to litigate against the Government, and those that could most often do not wish to risk “debarment” from doing further business with the Government until proven innocent.
FCPA enforcement has come to mean, “Let’s see just how far we can push the inherent ambiguities in the statute.” When that rare defendant does stand up and fight as in U.S. v. Giffen, we see a multi-year, multi-million dollar legal defense during which a Federal Court ultimately did not endorse the prosecutor’s attempt to “develop new case law.”
Unquestionably, there is marvelous deterrent value when the SEC makes clear that it aggressively pursues FCPA violators. Prosecutors also find good value in high profile prosecutions, since this accelerates their passage through the SEC’s revolving door to much more lucrative private practice.
A closing note of warning. As outrageous as it may seem, the SEC’s jurisdictional and enforcement philosophy is comparatively good news. On Friday, July 1, the former Head of the Unit, Cheryl Scarboro, is likely to start at Simpson Thacher. That is also the date the U.K. Bribery Act comes into force. The Bribery Act actually does purport to give British prosecutors statutory authority to pursue bribery anywhere on the planet Earth. Stay tuned!