Controlling the Prosecution of Bribery: Applying Corporate Law Principles to Define a "foreign Official" in the Foreign Corrupt Practices Act

• Publication year: 2021

CONTROLLING THE PROSECUTION OF BRIBERY: APPLYING CORPORATE LAW PRINCIPLES TO DEFINE A "FOREIGN OFFICIAL" IN THE FOREIGN CORRUPT PRACTICES ACT

Kayla Feld

Abstract: This Comment focuses on the debate surrounding the definition of an "instrumentality" within the Foreign Corrupt Practice Act's (FCPA) "foreign official" provision. The FCPA prohibits bribery of "foreign officials" but provides little guidance as to the types of entities included within the meaning of an "instrumentality." The Department of Justice construes this term broadly and therefore can aggressively prosecute alleged corruption. This Comment argues that courts should provide guidance on the definition of a "foreign official" within the meaning of the FCPA by applying principles of control drawn from corporate law. Such guidance would accomplish three important tasks. First, it would help corporations comply with the FCPA. Second, it would align with the approach used by foreign jurisdictions designated in treaty obligations. Finally, it could help achieve Congress's original objectives in enacting the legislation: namely, to prevent corruption of foreign public officials as well as the negative consequences for foreign policy.

INTRODUCTION

In the wake of the Watergate scandal, federal investigations uncovered illicit practices in both government and private business, including unreported campaign contributions and "questionable" and "illegal"(fn1) payments to domestic and foreign political officials.(fn2) The Securities Exchange Commission (SEC) began investigating these payments and discovered that approximately 400 U.S. corporations had made over $300 million in bribes to foreign public officials in order to secure business.(fn3) In 1977, Congress responded by enacting the Foreign Corrupt Practices Act (FCPA)(fn4) to criminalize bribery and improve the U.S. corporate image abroad.(fn5) Congress noted the "severe foreign policy problems" these bribes created for the U.S., and intended for the FCPA to prevent U.S. businesses from engaging in bribery, as this would have negative implications for the image of the United States abroad.(fn6) Congress sought to restore public confidence in American corporate practice.(fn7) The primary evil that Congress sought to address with the FCPA was improper payments to foreign government officials, which "invariably tend[] to embarrass friendly governments, lower the esteem for the United States among citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations."(fn8)

The FCPA had a slow start.(fn9) During the first quarter century of the FCPA's existence, the SEC and Department of Justice (DOJ), jointly responsible for enforcing the FCPA,(fn10) initiated only two or three cases per year.(fn11) Fines tended to remain below $1,000,000.(fn12) However, after an initial twenty years of relative dormancy, enforcement surged.(fn13) Over the past ten years, the DOJ and SEC have greatly increased the number of enforcement actions and the severity of fines assessed.(fn14) In 2010, for example, the DOJ and the SEC initiated a record of forty-eight and twenty-six cases respectively.(fn15) This trend shows no sign of abating, and the DOJ recently confirmed its intent to "vigorously enforce" the FCPA.(fn16) In November 2009, Assistant Attorney General Lanny Breuer remarked that the "past year was probably the most dynamic single year in the more than 30 years since the FCPA was enacted" and promised to continue "the upward trend in FCPA enforcement."(fn17)

While DOJ officials commend the surge in investigations and prosecutions, the reaction in the corporate world has been less enthusiastic. Of particular concern to directors and officers of corporations doing business abroad is the rise of prosecution of individuals.(fn18) According to Mark Mendelsohn, Deputy Chief of the Fraud Division at the DOJ, the rise in individual prosecutions is "not an accident."(fn19) Rather, the trend reflects the Department's policy of deterring bribery by holding individuals personally accountable.(fn20) The sanctions resulting from these enforcement actions have also risen dramatically. In 1994, the largest FCPA-related sanction was $24.8 million.(fn21) In 2008, a settlement for $800 million by Seimens Aktiengesellschaft ("Seimens AG") and its subsidiaries dwarfed the previous record.(fn22) The increase in prosecutions and sanctions reflects a trend of increasingly aggressive DOJ enforcement policy.(fn23) The FCPA's vague language has facilitated the Government's increasingly vigorous approach by permitting a broad interpretation of the statute's provisions.(fn24)

This Comment surveys the debate surrounding the clarity of the term "instrumentality" within the FCPA's definition of "foreign official" and recommends a resolution. The FCPA prohibits bribery of "foreign officials," defined as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof,"(fn25) but provides little guidance as to the types of entities included within the meaning of an "instrumentality."(fn26) The DOJ construes this term broadly, which permits it to aggressively prosecute alleged corruption.(fn27) Corporations have not been motivated to challenge the Government's interpretation in court, and have tended to opt for settlement rather than proceed to trial.(fn28) In 2011 alone, six settlements, plea agreements, or deferred prosecutions involved disputes over the definition of "instrumentality."(fn29) While corporations may have preferred to resolve these cases without a possibly lengthy trial and the ensuing publicity, each case diverted from trial has deprived the courts of a chance to clarify crucial definitions.(fn30) On the other hand, individuals prosecuted for bribery under the FCPA typically proceed to trial in an attempt to avoid high fines coupled with jail sentences.(fn31) For this reason, the individuals who have litigated FCPA cases have played a crucial role in developing the sparse jurisprudence.

The OECD Working Group on Bribery in International Business Transactions ("Working Group"), which monitors the implementation and enforcement of the OECD Anti-Bribery Convention, has also commented on the lack of explicit language in the definition of a "foreign official."(fn32) In its most recent evaluation, the Working Group noted that some courts had addressed the definition, and it noted more "positive legal developments."(fn33) The Working Group noted that District Court opinions are not binding on higher courts and thus the interpretation they provide remains subject to further dispute.(fn34) Even the more recent court opinions that provide written opinions(fn35) (which were not available at the time the Working Group prepared its report) provide little clarity, as they merely confirm that "[s]tate-owned business enterprises may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials."(fn36) This language does little to check the DOJ's broad interpretation of "foreign official," permitting it to continue its pattern of aggressive enforcement without providing useful guidance to businesses.(fn37) For this reason, the OECD's Working Group has urged more "positive legal developments concerning the application of the definition of 'foreign official' in the FCPA to . . . employees of state-owned or controlled enterprises."(fn38)

Several individuals have already challenged the DOJ's interpretation of the "foreign official" definition.(fn39) However, a troublesome lack of clarity remains. In the meantime, many corporations, fearing sanctions because of what they perceive as excessive vagueness in the law, have been forced to adopt the hyper-conservative strategy of labeling any company with a greater than one percent government ownership as "high risk."(fn40) This tactic significantly limits the types of businesses U.S. corporations may work with, reducing their ability to compete with corporations from other countries that are not similarly restrained.(fn41)

This Comment argues that courts should either clarify the definition of a "foreign official" or supply guidelines that will clarify standards for prosecuting FCPA violations. International treaties and anti-corruption laws in foreign countries could assist in formulating guidelines to clarify the definition of a foreign official.(fn42) If courts interpret the meaning of a "foreign official," they could refine the definition using principles of corporate law to evaluate a business entity's connection to the government by the level of control exerted on it by the government. In doing so, courts would help corporations comply with the FCPA by using legal principles familiar to them. Ideally, this path would result in increased clarity and better compliance.

Part I of this Comment introduces the basic provisions of the FCPA, including relevant amendments. Part II describes the legislative history of the FCPA. Part III examines the case law dealing with the definition of a "foreign official." Part IV discusses approaches to defining corporate responsibility from international anti-bribery legislation. Finally, Part V argues that courts should apply principles of control drawn from U.S. corporate law when defining a "foreign...