Last Tuesday, after only one day of deliberations, a Los Angeles jury found the United States v. Noriega No. 2:10-cr-01031, Lindsey Manufacturing defendants guilty of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and other substantive FCPA violations.[1] California-based Lindsey Manufacturing Company is the first American company to be charged and convicted under the FCPA, but government statements indicate that it will not be the last.
Assistant Attorney General Lanny Breuer made clear that last Tuesday’s “…guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts[.]” “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes—the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”
This significant verdict is in no small part due to presiding Judge A. Howard Matz’s April 1, 2011 decision that the Mexican state-owned utility company, Comisión Federal de Electricidad (“CFE”), could be an “instrumentality” of a foreign government and, therefore, its employees could qualify as “foreign officials” for FCPA purposes.
The decision, memorialized in an April 20, 2011 written opinion, could set the tone for how other courts interpret “foreign official” under the Act and how the DOJ prosecutes FCPA cases. The government claimed that Lindsey Manufacturing Company and two company executives bribed two senior CFE officials to win contracts. The government argued that these bribes violated the FCPA, which prohibits an American corporation or corporate representative from bribing a “foreign official” to obtain or retain business. Under the FCPA, a “foreign official” is “any officer or employee of a government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.” 15 U.S.C. § 78dd-2(h)(2)(A).
Judge Matz’s April 1, 2011 denial of the defendants’ motion to dismiss was the first opinion to definitively hold that executives of state-owned corporations could be “foreign officials.” Despite the defendants’ claim that congressional intent indicates that a state-owned corporation can not be an instrumentality of a foreign government and that the employees of such corporations can not be foreign officials, the court found the legislative history of the FCPA to be inconclusive and unnecessary in determining who is a “foreign official” under the Act. Instead, Judge Matz looked to CFE’s attributes. He concluded that under the defendants’ own definition of instrumentality, state-owned corporations with CFE’s attributes could be an instrumentality of a foreign government.
The court defined instrumentality in light of the two words that textually precede it in the statutory definition: “department” and “agency.” Judge Matz offered the following non-exclusive list of entities that have characteristics of government agencies and departments: 1) the entity provides a service to the citizens, 2) government officials appoint the officers and directors of the entity, 3) government appropriations or revenues finance the entity, 4) the entity is vested with and exercises exclusive or controlling power to administer its designated functions, and 5) the entity is perceived as performing official functions. The court then concluded that CFE has all of these characteristics. Judge Matz noted that CFE is a public entity, with a board composed of government officials, and that it describes itself as a government agency assigned to the task of exclusively supplying electricity to the entire country of Mexico. Based on this analysis the court concluded that CFE could be a state-owned corporation that qualifies as an “instrumentally” under the FCPA.
While the court’s decision favors an expansive interpretation of “foreign official,” it nonetheless leaves open the possibility of narrowing the term’s definition. Overall, the impact of this decision will be witnessed in the near future as courts grapple with and decide other cases that challenge the DOJ’s definition of “foreign official.”
- Angela Aguilar, was not convicted on FCPA violations. The Mexican citizen, and wife to missing Enrique Faustino Aguilar Noriega, was convicted on one count of conspiracy to launder money. She is alleged to have helped Noriega arrange millions of dollars in bribes from Lindsey Manufacturing Company to officials at the Comisión Federal de Electricidad.
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