Employees Of Foreign Counterparties Owned By Foreign Government May Be 'Foreign Officials' For FCPA Purposes

Author:Mr Michael Gilbert and Jeffrey R. Boles

The U.S. government's crackdown on bribery of foreign government officials—which has resulted in a dramatic increase in criminal prosecutions and SEC enforcement actions under the Foreign Corrupt Practices Act ("FCPA")—has been premised, in part, on an aggressive view of who is considered a "foreign official" for purposes of the FCPA. Since the vast majority of FCPA cases are resolved through pleas and/or settlements, there have been few legal challenges to the U.S. government's broad definition of "foreign official." On April 20, 2011, however, a federal court in California addressed this issue and agreed with the Department of Justice ("DOJ") that officers and employees of a state-owned utility corporation in Mexico are "foreign officials" under the FCPA.1

This ruling highlights the real risk that U.S. businesses face when doing business abroad, as FCPA liability can attach even when dealing with corporations that are, for all practical purposes, acting as counterparties, not government agencies.

The Prosecution of the Lindsey Manufacturing Company and Two of its Officers

The DOJ charged the Lindsey Manufacturing Company ("LMC"), a U.S. company based in California, and two of its officers with conspiracy to violate the FCPA, as well as substantive violations of the FCPA. LMC was in the business of manufacturing certain equipment used by electrical utilities. The Comisión Federal de Electricidad ("CFE"), an electric utility company wholly-owned by the Mexican government, was responsible for supplying electricity to all of Mexico (other than Mexico City).

The DOJ alleged that the defendants arranged for illegal payments to two high-ranking employees of CFE, in exchange for valuable contracts to supply CFE with equipment. The defendants allegedly funneled the payments through Grupo International ("Grupo"), a company owned and controlled by LMC's sales representative in Mexico, who was also indicted. According to the indictment, large portions of LMC's payments to Grupo were used to bribe CFE employees, and the LMC officers knew that those payments were being made.

The defendants filed a motion to dismiss the charges, arguing, among other things, that officers or employees of a state controlled utility corporation are not "foreign officials" for purposes of the FCPA.

"Foreign Officials" Under the FCPA

Congress enacted the FCPA to deter and punish bribery of foreign officials by U.S. companies, foreign companies whose shares are traded on U.S...

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