This post from last year pondered whether individuals associated with LIV Golf, financed by the Saudi Arabian Public Investment Fund (“PIF” – one of the largest sovereign wealth funds in the world) are “foreign officials” under the Foreign Corrupt Practices Act given how this element of the FCPA’s anti-bribery provisions has been interpreted by the DOJ and SEC.
The question is perhaps more pressing now given the announcement last week that the PGA Tour, LIV Golf (PIF) and the DP World Tour “have signed an agreement that combines PIF’s golf-related commercial businesses and rights (including LIV Golf) with the commercial businesses and rights of the PGA TOUR and DP World Tour into a new, collectively owned, for-profit entity.”
According to the release:
“PIF will make a capital investment into the new entity to facilitate its growth and success. The new entity (name TBD) will implement a plan to grow these combined commercial businesses, drive greater fan engagement and accelerate growth initiatives already underway.
[…]
Under the terms of the agreement, the Board of Directors of the new entity will oversee and direct all the new entity’s golf-related commercial operations, businesses and investments. The new entity will work to ensure a cohesive schedule of events that will be exciting for fans, sponsors and all stakeholders. PIF will initially be the exclusive investor in the new entity, alongside the PGA TOUR, LIV Golf and the DP World Tour. Going forward, PIF will have the exclusive right to further invest in the new entity, including a right of first refusal on any capital that may be invested in the new entity, including into the PGA TOUR, LIV Golf and DP World Tour. The PGA TOUR will appoint a majority of the Board and hold a majority voting interest in the combined entity.
[…]
The Board of Directors of the new commercial entity will include [PIF Governor] Al-Rumayyan as Chairman and [PGA TOUR Commissioner Jay] Monahan as Chief Executive Officer; the new entity’s Board will also include an Executive Committee comprising Al-Rumayyan, Monahan, Herlihy and PGA TOUR Policy Board member Jimmy Dunne. The full Board will be announced at a later date, and it is anticipated that all three founding members will have representation.”
Here is what the DOJ and SEC say in the FCPA Guidance.
“Foreign officials under the FCPA include officers or employees of a department, agency, or instrumentality of a foreign government. When a foreign government is organized in a fashion similar to the U.S. system, what constitutes a government department or agency is typically clear (e.g., a ministry of energy, national security agency, or transportation authority). However, governments can be organized in very different ways. Many operate through state-owned and state-controlled entities, particularly in such areas as aerospace and defense manufacturing, banking and finance, healthcare and life sciences, energy and extractive industries, telecommunications, and transportation. By including officers or employees of agencies and instrumentalities within the definition of “foreign official,” the FCPA accounts for this variability.
The term “instrumentality” is broad and can include state-owned or state-controlled entities. Whether a particular entity constitutes an “instrumentality” under the FCPA requires a fact specific analysis of an entity’s ownership, control, status, and function. The Eleventh Circuit addressed the definition of “instrumentality” in United States v. Esquenazi, a case involving the state-owned and controlled telecommunications company of Haiti. The Eleventh Circuit concluded that 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.” Although the court noted that this test is a fact-bound inquiry, it provided the following non-exhaustive list of factors to determine whether the government “controls” an entity:
- 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 fiscal accounts, 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.
To determine whether the entity performs a function that the government treats as its own, the Eleventh Circuit listed the following non-exhaustive factors:
- 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.
[…]
While no one factor is dispositive or necessarily more important than another, as a practical matter, an entity is unlikely to qualify as an instrumentality if a government does not own or control a majority of its shares. However, there are circumstances in which an entity would qualify as an instrumentality absent 50% or greater foreign government ownership, which are reflected in a limited number of DOJ or SEC enforcement actions brought in such situations. For example, in addition to being convicted of funneling millions of dollars in bribes to two sitting presidents in two different countries, a French issuer’s three subsidiaries were convicted of paying bribes to employees of a Malaysian telecommunications company that was 43% owned by Malaysia’s Ministry of Finance. There, notwithstanding its minority ownership stake in the company, the Ministry held the status of a “special shareholder,” had veto power over all major expenditures, and controlled important operational decisions. In addition, most senior company officers were political appointees, including the Chairman and Director, the Chairman of the Board of the Tender Committee, and the Executive Director. Thus, despite the Malaysian government having a minority shareholder position, the company was an instrumentality of the Malaysian government as the government had substantial control over the company.”
