Since the FCPA only applies to foreign officials, the
definition of that term is critical to the application of the statute.
Government enforcement officials have routinely included with the definition
state owned enterprises and employees of those companies. They have also
include in that category various other entities controlled by a foreign
government. In contrast, where bribes are paid to the government the FCPA
bribery provisions do not apply. Thus in the U.N. Oil For Food cases where the
bribes and kickbacks were paid to the Iraqi government the books and records
provisions were the predicate for the actions by the SEC and, in criminal
cases, the wire fraud statutes.
In the Lindsay Manufacturing FCPA case which is currently
on trial, Judge Matz in the Central District of California, recently rejected a
challenge to a indictment claiming that a state owned enterprise and its
employees are not within the statutory definition of foreign official. U.S.
v. Noriega, Case No. 2:10-cr-01031 (C.D. Ca.). The pending indictment
charges defendants Keith Lindsey, President of privately owned Lindsey
Manufacturing, Steve Lee, Vice President and CFO of the company and Lindsey
with conspiracy to violate the FCPA as well as substantive violations.
The defendants are alleged to have paid bribes to two
high ranking employees of the Comision Federal de Electricidad or CFE, an
electric utility company wholly owed by the Mexican government. The payments
were made through Grupo International, a company incorporated in Panama and
headquartered in Mexico. Employees of that company were also charged but are
not on trial. The payments from Lindsay to an employee of Grupo were suppose to
be commissions. The government claims that in reality they were bribes paid to
Nestor Moreno and Arturo Hernandez, both Mexican citizens and employees of CFE.
The defendants moved to dismiss the indictment claiming
that officers and employees of state owned enterprises are not foreign
officials within the meaning of the FCPA. The Act defines a foreign official as
"any officer or employee of a foreign government or any department, agency or
instrumentality thereof . .. " The question raised by the defense motion is
whether a state owned enterprise is an instrumentality of a foreign government.
Under the Mexican Constitution electricity is supplied
solely by the government the Court's opinion notes. Under Mexico's Public
Service Act of Electricity of 1975, the organic law that created CFE, the
entity is described as a "decentralized public entity with legal personality
and its own partrimony." On its website CFE is described as a government agency
created and owned by the Mexican government.
Defendants claimed however that "as a matter of law no
state-owned corporation is an 'instrumentality,' meaning that no CFE employee
is a 'foreign official' under the FCPA." This argument was based on two key
points: 1) the plain meaning of instrumentality and 2) the legislative history
of the FCPA.
To support the first proposition defendants cited
definitions from three different dictionaries stating that the term focused on
"serving as a means or agency." This concept does not include corporations
according to the defense argument. Rather, the word "instrumentality" should be
interpreted in view of the preceding words in the definition of foreign
official which are "department" and "agency." While the government agreed that
"instrumentality" should be interpreted in view of the earlier words in the
statute it disagreed the defense interpretation.
The Court rejected defendants' contention concluding
that: "Defendants' very language reveals an illogical flaw in their 'all or
nothing' approach. That is, they argue that a state-owned corporation can never
be an 'instrumentality' because state-owned corporations 'do not always' share
the characteristics of departments and agencies. This formulation implicitly
concedes that some state-owned corporations can and do share the
characteristics of departments and agencies. And defendants never explain why
those corporations must be excluded from the definition of
'instrumentalities.'" Based on this analysis defendants' motion must fail the
Second, the Court considered the legislative history of
the Act although in fact it found this exercise unnecessary. Both the defendants
and the government claimed that the history of the FCPA supported their
position. The Court concluded however that the legislative history is at best
equivocal. Accordingly the motion was denied.
In an Addendum the Court expressed astonishment over the
position of the government. During briefing and oral arguments on the motion
the government referred to CFE as a corporation. After the motion concluded it
requested that the Court take judicial notice of the fact that CFE is not in
fact a corporation but a "decentralized public entity . . " a fact it failed to
point out to the Court.
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