As readers no doubt know, in May 2014 the 11th Circuit issued a decision of first impression for an appellate court on the issue of whether employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA.
This prior post contains numerous links to other posts regarding the decision.
In short, in U.S. v. Esquenazi, the 11th Circuit concluded 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.”
As evident from the 11th Circuit’s ruling, a key element of a U.S. federal law will often be dependent on foreign law or foreign government circumstances or characterization of an alleged SOE.
Indeed, as noted in this prior post, the meaning of foreign official thus can have 193 meanings (by most measures, the number of countries in the world). As noted in the prior post, 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. (See Release 94-01).
The 11th Circuit itself recognized that its control and function test could raise constitutional vagueness concerns. As stated by the court, it can 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.”
The above is relevant background in discussing a recent article – outside the FCPA context – but with clear FCPA implications given the above background.
In “The Dynamic Incorporation of Foreign Law and the Constitutional Regulation of Federal Lawmaking,” Paul Larkin argues that “the prospect that the United States would grant a foreign government the legal authority to govern the people of this nation is absurd.” Stated differently, Larkin notes:
“Congress’s decision to authorize foreign government and foreign officials to define the content of a domestic law raises legal issues residing at the core of any analysis of how the federal government may govern […]”
According to Larkin, such circumstances are unconstitutional “because it vests domestic federal lawmaking in foreign governments and their officials.”
Larkin then discusses several “problems posed by vesting absolute lawmaking power to define federal criminal law in the hands of foreign officials who may be used to governing in a foreign system for people who may live in a culture with vastly different legal and social expectations.”
Among the problems are the following:
“It is wholly unrealistic to assume that Americans know foreign law. Foreign codes may not always reflect American law or morals, so there is no justification for presuming that domestic residents will know foreign laws by heart.”
“Finding foreign law may also be difficult. Foreign nations may not make all of their laws public, whether in printed code accessible in a domestic library or via the Internet.”
“Other nations may grant their departments similar rulemaking power [to U.S. agencies] but their agencies may not publish regulations in their version of the Federal Register or Code of Federal Regulations (assuming that they have one at all).”
“A foreign law must be identifiable as a ‘law.’ Yet, foreign nations may define their ‘law’ to embrace edicts with no parallel or counterpart in our legal system.”
Larkin’s article raises interesting parallel issues concerning the current “foreign official” enforcement theory.
Moreover, the issues raised in Larkin’s article are not merely hypothetical in the FCPA context. As noted in this prior post, several of the issues Larkin identified were disputed in the SEC’s failed case against Mark Jackson and James Ruehlen regarding Nigerian law relevant to temporary importation permits.
