In January 2014, the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.” The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold, and former general counsel Gregory Weisman.
As detailed in this prior post, the alleged foreign official was “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol.” Ecopetrol was alleged to be “the state-owned and state-controlled petroleum company in Colombia.”
Unlike his co-defendants Hammarskjold and Weisman who previously pleaded guilty, Sigelman is challenging various aspects of the DOJ’s case, including its interpretation and application of the “foreign official” element.
The introduction of this October 29th motion to dismiss states (internal citations omitted) as follows:
“The indictment alleges that Joseph Sigelman violated the FCPA by authorizing a set of payments in 2010 to David Duran, who the Government claims was an employee of a Colombian corporation called Ecopetrol S.A. (Ecopetrol). Sigelman can be liable only if Duran was a “foreign official,” a term defined to include “any officer or employee of a foreign government or any . . . agency, or instrumentality thereof.” To be an “agency” or “instrumentality,” an entity must perform a governmental function.
The indictment is correct that Ecopetrol used to fit this description. Colombia created Ecopetrol in 1951 to be the official state body in charge of regulating the nation’s hydrocarbon resources. At the same time, Ecopetrol held a mandate to explore and extract oil and gas to sell in the open market. For decades, it carried out these dual functions, albeit lethargically. Being a government regulator stifled Ecopetrol’s ability to compete with private oil-and-gas companies. Its access to credit markets was limited. The Colombian government’s budget, rather than business judgment, guided decisionmaking.
Colombia grew fed up with the lack of commercial success. So in 2003, it split Ecopetrol in two. All of Ecopetrol’s regulatory and other governmental functions as well as its public interest mandate were assigned to a new state entity, the National Hydrocarbon Agency. Once divested of its government authority and functions, Ecopetrol became solely a commercial enterprise, its exclusive mission being to thrive in the highly competitive energy market. To further this mission and encourage Ecopetrol to be more competitive, Colombia amended its laws to treat Ecopetrol like Chevron, ExxonMobil, Royal Dutch Shell, or any other private oil-and-gas company. Ecopetrol became a corporation with shares of stock that could trade on public markets. It lost its privileged access to Colombian oil fields and stopped receiving any special benefits from the Colombian government, such as subsidies, dispensations, and tax exemptions. It became subject to private commercial law. Thus, Colombia’s Commercial Code (which applies to private companies) rather than Colombia’s General Contract Law for the Public Administration (which applies to public establishments) would govern Ecopetrol’s contracts. The labor code applicable to private companies would regulate Ecopetrol’s relations with its employees.
In short, as of 2010, when the events in this case took place, Ecopetrol was, as a matter of Colombian law, an ordinary market participant bereft of any governmental function. As the Government conceded in United States v. Esquenazi, an entity devoid of a governmental function is not an “agency” or “instrumentality” of a foreign government under the FCPA, regardless of whether a foreign government owns a majority of the stock of that entity.2 So even if the factual allegations in the indictment were true, the payments to David Duran would, as a matter of law, not violate the FCPA because they were not made to a “foreign official.” Thus, the FCPA charges must be dismissed.
Any contrary interpretation that stretches the definition of “foreign official” to cover employees of entities that exercise no public function, like Duran, would render the FCPA void for vagueness as applied to Sigelman. Nowhere in the statute’s provisions is there fair notice that it is unlawful to authorize payments to an employee of a corporation that does not perform any governmental functions. Permitting the Government to use the FCPA—a statute whose purpose is to penalize and discourage corruption of government officials—to prosecute payments made to employees of corporations with no governmental functions would leave charging decisions to the whims and personal views of prosecutors, with no reasonable foundation in the words of the statute or the intent of Congress. Thus, if the Government’s reading of the statute is correct, the charges against Sigelman under the FCPAmust also be dismissed on vagueness grounds.
Accordingly, Sigelman respectfully requests dismissal of all charges against him under the FCPA: namely, Counts Two, Three, and Four in their entirety, plus the portions of Counts One and Five alleging that Sigelman conspired to violate, and conspired to transfer money with the intent to violate, the FCPA. Sigelman further requests that this Court hold a hearing on issues of Colombian law pursuant to Federal Rule of Criminal Procedure 26.1.”
Sigeman’s motion is supported by an expert declaration from Carlos Gustavo Arrieta Padilla who, among other previous positions, was the Attorney Inspector General of Colombia and a Justice of the State Council (the Colombian Supreme Court for administrative and certain constitutional matters).
In this November 12th opposition memorandum, the DOJ states under the heading “Introduction” as follows.
“Defendant’s latest motion seeks the dismissal of counts corresponding to the FCPA charges in this case. Defendant claims that although the Government included well-pled allegations in the Indictment that the bribe recipient was a “foreign official,” as that term is defined in the FCPA, and was employed by an “instrumentality,” as that term is defined in the FCPA, the Court should look to facts outside the Indictment – including, among other things, a 22-page declaration by an individual who Defendant deems an “expert” – to remove this issue from the purview of the jury and dismiss the counts pretrial. Defendant is incorrect. As every single other court which has addressed this very issue has concluded, this is an issue of fact for the jury to decide after the presentation of all of the evidence. Indeed, the Government intends to submit substantial evidence at trial to establish beyond a reasonable doubt that the bribe recipient was a foreign official under the FCPA.
Moreover, and also as every other court to confront this very issue has found, the FCPA is not unconstitutionally vague as applied to Defendant. Importantly, the FCPA requires the Government to prove that Defendant acted corruptly and willfully, which is wholly inconsistent with the notion that Defendant did not have fair notice.
Defendant’s most recent motion to dismiss should be denied.”
In its brief, the DOJ states, in pertinent part, that “some of the facts about Ecopetrol that the Government may rely on at trial, and that clearly demonstrate that Ecopetrol is an “instrumentality” under the FCPA, include:
Ecopetrol was created by the government of Colombia;
The Colombian government is required to maintain at least an 80% interest in Ecopetrol, and during the relevant time period Ecopetrol was 89.9% owned by the Colombian government;
The Colombian government has the ability to select a majority of Ecopetrol’s board of directors, and during the relevant time period the board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency;
The Colombian government has the right and ability to “undertake projects which may not be in [Ecopetrol’s] best interest” but are instead in the government’s interest;
Ecopetrol “reserve[s] the right to plead sovereign immunity under the United States Foreign Sovereign Immunities Act of 1976 with respect to actions brought against [it] under United States federal securities laws or any state securities laws” by any of Ecopetrol’s minority shareholders;
Ecopetrol prepares its “financial statements in accordance with Colombian Government Entity GAAP”;
Before Ecopetrol “can issue any debt in the international and local capital markets or incur any other type of indebtedness, the Government [of Colombia], through the Ministry of Finance and Public Credit, must authorize the issuance of such debt and [Ecopetrol] must register external debt with the Colombian Central Bank”;
The Colombian government “may require [Ecopetrol’s] Board of Directors to declare dividends in an amount that result in [Ecopetrol] having to reduce [its] capital expenditures thereby negatively affecting [its] prospects, results of operations and financial condition”;
Prior to 2004, any oil company wishing to engage in oil-related services in Colombia had to enter into an agreement with Ecopetrol. Ecopetrol remains, to this day, “as counterparty to the contracts which [it] signed prior to January 1, 2004” which include the Mansarovar contract. “The contracts on which [Ecopetrol is] the counterparty all have clauses which provide, at [Ecopetrol’s] sole option, for extensions. If [Ecopetrol] do[es] not extend the contracts, the right to exploit the hydrocarbon reserves which are the subject of the contract revert to [Ecopetrol], and [Ecopetrol] ha[s] the right to exploit them for an indefinite period at no additional cost to [Ecopetrol].” For example, as recently as June 2010 (in the middle of the charged FCPA conspiracy), “the ‘Santiago de las Atalayas Contract’, one of the most important exploration and production contracts due to its amount of crude oil and natural gas reserves, terminated and the right to exploit the hydrocarbon reserves subject to this Contract reverted back to [Ecopetrol].”; and
Employees of Ecopetrol, to this day, are treated as public officials for purposes of Colombia’s public corruption laws, and in fact have been prosecuted for such actions in recent years.”
As stated in the DOJ’s brief, “these are not attributes of a private commercial enterprise – they are the attributes of a foreign government instrumentality.”
In this November 14th reply letter to the court, Sigelman’s lawyers write.
“The validity of the government’s FCPA charges rests upon its assertion that Ecopetrol was an “instrumentality.” It is undisputed that performing a governmental function is a sine qua non of being an “instrumentality” under the FCPA. Yet nowhere in the indictment or its 28 pages of briefing responsive to Mr. Sigelman’s instant motion does the United States identify any Colombian governmental function performed by Ecopetrol in 2010.”