Foreign Corrupt Practices Act 'Foreign Official' Defense Challenges Denied By California Federal Judges

In the past two months, judges in the Central District of California denied defendants' pre-trial motions to dismiss counts in indictments charging defendants with violations of the Foreign Corrupt Practices Act ("FCPA") in two separate cases. The motions stated that the indictments failed to state an offense because the alleged corrupt payments were not paid to "foreign officials" for purposes of FCPA criminal liability. Nevertheless, the rulings clearly indicate that the issue of whether an officer or an employee of a state-owned corporation can be considered a "foreign official" under the FCPA requires a case-by-case analysis of the facts. FCPA "foreign official" challenges therefore remain a viable defense for defendants facing trial-at least for now.

The anti-bribery provisions of the FCPA prohibit any domestic individual or business entity from making payments to a "foreign official" for the purpose of obtaining or retaining business. 15 U.S.C. § 78dd-2(a)(1). In relevant part, "foreign official" is defined as "any officer or employee of a foreign government or any department, agency or instrumentality thereof." 15 U.S.C. § 78dd-2(h)(2)(A). "Instrumentality" is not defined in the FCPA, and thus, in the wake of increased FCPA enforcement by the DOJ and SEC, individual and corporate defendants facing trial for FCPA violations have challenged whether a state-owned corporation can be considered an "instrumentality" of a foreign government under the FCPA.

On May 18, 2011, in the case of United States v. Carson, et al., No. 8:09-cr-00077- JVS, ECF No. 373 (C.D. Cal. May 18, 2011), Judge Selna ruled that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact," which cannot be entirely segregated from the evidence to be presented at trial. In that case, which is scheduled for trial on October 4, 2011, former executives of Controlled Components Inc. ("CCI") have been charged with paying $4.9 million in bribes to officers and employees of state-owned energy companies in China, Korea, Malaysia, and United Arab Emirates between 2003 and 2007. CCI manufactures and sells control valves for use in the nuclear, oil and gas, and power-generation industries worldwide.1 In considering the defendants' argument that employees of state-owned companies can never be "foreign officials" under the FCPA, Judge Selna concluded that case law, the clear statutory language of the FCPA, and its coherent and...