In the aftermath of the 11th Circuit’s recent “foreign official” decision, some appear perplexed why the meaning of “foreign official” even matters.
This commentator stated:
“If your are trying to figure out whether a company is a private company or an “instrumentality” of a foreign government under the Foreign Corrupt Practices Act you are already in trouble. To reach that point in the FCPA analysis you’ve already paid a bribe, or are thinking of paying a bribe. (If you’re just thinking about it; Don’t do it.) Otherwise you’ll end up in the position of Joel Esquenazi and Carlos Rodriguez.”
Such comments are not new.
For instance, as highlighted in this 2011 post in advance of the U.S. House’s June 2011 FCPA hearing, various civil society organizations asked – regarding calls for clarification of the “foreign official” element: “Greater certainty of what? Greater certainty of who [companies] are permitted to bribe and who they are not permitted to bribe.”
I respectfully submit that such comments (both then and now) are entirely off-base and not the main reason why the meaning of “foreign official” matters.
To be sure, the meaning of “foreign official” mattered to Esquenazi and Rodriguez in the narrow context of their case and more broadly for the obvious rule of law reasons implicated in criminal law enforcement.
Numerous previous posts have analyzed the 11th Circuit’s “foreign official” decision (see here for the first reporting of the decision; here for the key language of the decision; here for “foreign official” – the current landscape; here for a “foreign official roundup, here for a perspective on the court’s flawed reasoning; and here for the 193 different meanings of foreign official).
This post highlights why “foreign official” matters to the entire business community.
For starters, to say that the meaning of “foreign official” matters only to those intent on engaging in bribery is like saying the drinking laws matter only to those intent on drunk driving. Sure, the drinking laws can certainly capture those engaged in drunk driving, yet the reality is the underlying activity – drinking – is legal and socially acceptable in most other situations.
The same is true when it comes to the meaning of “foreign official.”
The FCPA’s anti-bribery provisions are, generally speaking, implicated when money or something of value is offered or provided to a “foreign official” in connection with a business purpose. But guess what? The underlying activity, offering or providing money or something of value in connection with a business purpose is legal and socially acceptable in most other situations. In fact, in most circles it is called effective sales and marketing, wining and dining the customer, or maintaining good will.
The point is companies competing in good faith in the global marketplace can legally provide things of value to one category of person in connection with a business purpose, yet providing the same thing of value to a different category of person can be a crime.
In other words, the meaning of “foreign official” expands regulation of business interactions with a “well-defined group of persons” (as correctly noted by the 5th Circuit in U.S. v. Castle – see here) to an ill-defined, practically boundless category of persons as found by the 11th Circuit in Esquenazi.
How is a company supposed to know what category of person it can safely provide things of value to in connection with a business purpose and the category of person where providing things of value may be deemed a crime? As highlighted in this prior post, it is difficult to comprehend how a business organization could legitimately find answers to many of the factors identified by the 11th Circuit as being relevant to the “instrumentality” analysis.
As even the 11th Circuit recognized: it will 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.”
At this point, I can hear certain readers screaming, come on, FCPA enforcement actions are about bribery, not providing mere things of value to “foreign officials.” If that is your view of FCPA enforcement, then you are clearly not reading the actual enforcement agency resolution documents which frequently contain references to such things of value as handbags, tea sets, karaoke bars, flowers, and yes even cigarettes.
Again, the reason why “foreign official” matters is because providing such things of value to one category of person in connection with a business purpose is often perfectly acceptable and legitimate, yet providing such things of value to another category of person – as evidenced by FCPA enforcement actions – is labeled a crime by the enforcement agencies.
At this point, I can also hear certain readers saying, well, the Travel Act can cover providing such things of value to non-“foreign officials,” and regardless, the FCPA’s books and records and internal control provisions are implicated in connection with all expenditures by issuers. If that is your position, I say please highlight any Travel Act enforcement action or non-FCPA, FCPA books and records and internal controls enforcement action focused on karaoke bars, flowers and cigarettes.
One may be inclined to dismiss corporate concern about providing such inconsequential things of value to certain categories of persons as over-reaction and paranoia. However, this reaction is understandable because of what the DOJ and SEC are choosing to include in FCPA enforcement action resolution documents and based on DOJ policy statements that the business community should look to resolution documents (including NPAs and DPAs) as evidence of what improper conduct is under the FCPA.
In short, the vast majority of companies competing in good faith in the global marketplace are struggling with the definition of “foreign official” not because they want to bribe anybody. But rather because such companies are legitimately and legally providing things of value to customer x, but fearful that providing the same thing of value to customer y will be deemed a crime.
The resulting compliance reality is that risk averse companies are acting contrary to sensible enforcement agency guidance. For instance, in the FCPA Guidance the DOJ/SEC warned about “devoting a disproportionate amount of time policing modest entertainment and gift-giving.” Likewise, in the SEC’s most-extensive FCPA guidance, the agency cautioned companies that “thousands of dollars ordinarily should not be spent conserving hundreds.”
For the above reasons, the meaning of “foreign official” matters.
