Legal News

But Who?s a ?Foreign Official?? FCPA to Get Key Test Next Month

By Dionne Searcey

One of the chief complaints concerning the FCPA is that the Justice Department has interpreted it too broadly.

The law bans corporations from bribing foreign government officials. DOJ has said the law applies to not just U.S. companies but any corporation that trade on U.S. exchanges. Its definition of a bribe is far from narrow and includes not just cash but presents or promises of payments.

And its definition of "government officials" includes, say, doctors at state hospitals or construction workers at state mining operations.

It appears that for the first time a federal judge will take on that notion next month. (Hat tip: Professor Mike Koehler's FCPA blog.)

Judge James Selna, who sits in Santa Ana (of Toyota sudden-acceleration mass tort litigation fame), will soon hear a motion to dismiss an FCPA case against four employees of Control Components Inc. The case addresses the definition of government officials under the FCPA.

In April 2009 the Justice Department indicted former employees of the California company, which makes valves for energy equipment, accusing them of having made at least 236 payments to various officials to win contracts in more than 30 countries.

The indictment accuses one former employee of flushing incriminating documents down a ladies’ room toilet. It also says employees allegedly tried to mask the bribes by referring to them as “flowers” and detailed in emails their attempts to find a “friend in camp,” a government official at various power plants whom they could bribe.

The defendants argue that the state-owned companies identified in the indictment – i.e., the supposed recipients of the alleged bribes – fall beyond the scope of the FCPA's definition of "foreign official."

The statute defines a foreign official like this:

"Any officer or employee of a foreign 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."

The motion to dismiss argues that no court has meaningfully construed the term "instrumentality" in the FCPA.

"In the absence of such case law, (DOJ) has liberally pushed the envelope and staked out a maximalist position as to the meaning of the term," the motion says.

The defendants accuse DOJ of "baldly" asserting that "instrumentality" includes state-owned businesses and therefore the FCPA applies to all employees "regardless of rank, position, function, or duties," it says.

Defense lawyers argue that DOJ's interpretation is so absurdly broad that even U.S. citizens living in the U.S. but working for a foreign owned company would be considered a foreign official.

Full post as published by Law Blog - WSJ.com on February 22, 2011 (boomark / email).