Flailing at the Definition of a “Foreign Official”

by Michael Volkov
Contact

https://jdsupra-html-images.s3-us-west-1.amazonaws.com/1a2684d1-1875-4945-b531-5b4173a2ab55-imagesCA84PDI6.jpgPerhaps I was being overly optimistic.  I thought the Justice Department and the SEC could bring a little clarity to the term “instrumentality” in the definition of a “foreign official” under the FCPA.  It was wishful thinking on my part.

In fairness, the Justice Department has a pending appeal before the 11th Circuit on this issue and any statements made could definitely have been used against the Department in the appeal.  Instead, we are left with standards which look more like roadkill – a mish mosh of factors developed by two district court judges, and a pending appeal on another in the 11th Circuit. 

Depending on political leanings, judges can sometimes “legislate” from the bench.  Hopefully, the 11th Circuit will clean this issue up a little bit or at least ask Congress to do so. 

The cleanest solution to the “instrumentality” and “foreign official” test is to adopt a standard which covers private entities that are controlled by foreign governments through ownership or voting power.  In analogous terms, it means de jure and de facto control should be the standard.  It is the easiest solution available and will help companies and practitioners ensure compliance.

But there is no chance that Congress will step in and fix this problem.  It is too politically dicey and there is too much controversy surrounding the FCPA for a simple and clean solution.  While the Eleventh Circuit could adopt such a standard, I am not optimistic.  Judges tend to like multi-part tests and factors to weigh so that they can create flexibility to address some situations which may not be foreseeable at the time of the court decision. 

Unfortunately, a judicial solution or conflict among the circuits will take years to occur so that the issue can be resolved, if necessary, by the Supreme Court.  Congress should do something about this.  It is in its wheelhouse of constitutional responsibilities. 

The FCPA Guidance provides little “guidance” on the term “instrumentality” in the “foreign official” definition, citing its “long used analysis of ownership, control, status and function” to decide whether an entity is an agency or instrumentality of a foreign government.  

In recognition of the problem it faces in this area, the FCPA Guidance tries to walk a tight rope by stating that “an entity is unlikely to qualify as an instrumentality if the government does not own or control a majority of its shares.”  That is about as good as it can get.

The problem for DOJ and the SEC is that, in a prior enforcement action, they extended the “instrumentality” definition to bribes paid to a foreign telecommunications company which was 43 percent owned by the Malaysian government.  The FCPA Guidance tries to distinguish this situation by suggesting that the government had a “special shareholder” status which gave it veto power over major operational decisions, and that a number of the company leaders were government officials.  This is a distinction without any persuasion since it is not unusual for minority shareholders to have protections or veto authority involving major corporate decisions.

DOJ and the SEC could not disavow the 43 percent standard it applied in the one case.  They had to try and shoehorn the situation into a workable ownership or control test.  They gave it a good try but they were a victim of their own success. 

The issue will remain muddy for the years to come.  It makes life a little bit more difficult when advising companies on compliance.  My fingers are crossed that a more practical solution will be adopted either by the courts or by Congress.

Written by:

Michael Volkov
Contact
more
less

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.