The prognosticators have now spoken (yet again) and
decreed that the Houston Astros will be this year's worst team in baseball. We
are well into the first week of Spring Training and the Houston
Chronicle has reported that Baseball Prospectus has predicted only 67 wins
for the hometown heroes this year; one less than the American League worst
Kansas City Royals. Is such a result at this point in the (pre) season absurd
or is it justified as defined by Baseball Prospectus' "sobering piece of
analysis for Astros fans with sobering statistics"? You will have to
prognosticate that one for yourself.
All of which brings us to one of the points the defense
has used in its Motion to Dismiss in the US v. Carson matter. The FCPA
and compliance world has literally been "a-twitter" over the filing of this
brief which puts squarely before a federal district court the questions of just
what is an "instrumentality" of a foreign government and who is a foreign
government official. One of the five major points the defense argues is that
Government's interpretation that a foreign government commercial investment in
an otherwise private company leads to the "absurd" result that such
an entity becomes an instrumentality of the foreign government which made the
investment. The defense extrapolates that such an interpretation "would
transform persons no one would consider to be foreign government employees into
The defense provides the current example of the company
CITGO which since 1990 has been a wholly-owned subsidiary of a
Venezuelan-state-owned oil corporation, PDVSA. CITGO is headquartered in
Houston and traces its corporate roots in the United States to 1910. Under the
current thinking of the Department of Justice, the defense argues that CITGO is
an "instrumentality" of the Venezuelan government and all of its Houston-based
officers and employees are therefore "foreign officials" of Venezuela.
We viewed this portion of the defendant's brief with an
eye towards two recent energy related transactions. As reported in the Wall
Street Journal on February 10, 2011, the Canadian company Encana will
"split costs and profits" for energy development in North America with the
Chinese state owned enterprise PetroChina. They will "jointly develop" shale
properties and actively seek foreign investors to assist in such developments.
Under the current DOJ thinking, such an entity to "split the costs and profits"
might well become an instrumentality of the foreign government owned Chinese
oil company. Absurd?
Back in January, BP announced it had reached an agreement
with the Russian government owned energy company Rosneft, to develop energy
production in the Artic. As reported in the Wall
Street Journal, the two companies will jointly explore for oil and gas in
the Russian Arctic, one of the world's last remaining unexplored hydrocarbon
basins. Rosneft will be issued new BP shares equivalent to a 5% stake, valued
at $7.8 billion, while BP will receive a 9.5% stake in Rosneft, in addition to
the 1.3% it already holds. The deal makes Rosneft the single largest BP
shareholder. Could BP now become an "instrumentality" of Rosneft and thereby
subject to the FCPA from that perspective? Absurd?
So at one week into Spring Training, which do you think
is the more absurd result; that the Astros will be the worst team in baseball
OR that when a foreign government owned entity, invests in an otherwise private
company, such investment becomes an "instrumentality" of the foreign government
which makes the investment?
For a copy of the defendants brief, click here.
For a copy of the Declaration of Michael Koehler (the
FCPA Professor) in support of the defendant's brief, click here.
Visit the FCPA Compliance and Ethics Blog,
hosted by Thomas Fox, for more commentary on FCPA compliance, indemnities and
other forms of risk management for a worldwide energy practice, tax issues
faced by multi-national US companies, insurance coverage issues and protection
of trade secrets.
This publication contains general information
only and is based on the experiences and research of the author. The author is
not, by means of this publication, rendering business, legal advice, or other
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© Thomas R. Fox, 2011
FCPA as it relates to the securities laws is discussed in greater detail in 6
A.A. Sommer Jr., Securities Law Techniques, Ch. 82 (Matthew Bender Rev.
Ed.), " Complying with the Foreign Corrupt Practices Act," which can
be accessed online by subscribers of lexis.com. This
treatise is also available on the LexisNexis online store.
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