FCPA Update: Instrumentalities, and separately, Inadvertent Consequences

(I am preparing a post about the recent uproar over flash trading, so please forgive me if this morning I write mini-posts about issues on my radar - thanks!).

First, Law.com ran an interesting article yesterday about how American businesses can navigate the changing role of foreign officials and instrumentalities in light of the current economic crisis (where a foreign official is any person acting in an official capacity over an, inter alia, instrumentality of the government). The crux of the issue: precedent is a poor guide as to what degree of control an official must have over an organization before that organization becomes an "instrumentality." A variety of governments have recently participated in different forms of stimulus and aid to buttress their countries' businesses. The result is a wide variety of degrees and forms of government involvement. Bottomline: good luck American business seeking FCPA compliance. Authors Stephanie Meltzer and Christopher Tierney.

Also of interest: weeks ago I had come across a Fulbright Scholar who had written a research document that received positive feedback at the FCPA Blog. Then I read about him again in the WSJ; and then again last night on the Glom. Those scrutinizing his work are quite interested in his position, and it might be worth checking out. His argument is pretty straight-forward: an effective FCPA removes American investment in foreign markets, but does not achieve a higher ethical standard of business (no bribery). Rather, it allows broader access to that foreign market by foreign business actors to make the same - more? - bribery payments. The author is Andrew Spalding and the paper is available here.

FCPA: Conscious Disregard is Knowledge

This weekend’s news covered a Friday verdict from the Southern District Court of New York that found Frederick Bourke guilty of conspiring under the Foreign Corrupt Practices Act (“FCPA”). Broadly, the FCPA prohibits American businesses from making payments to foreign officials for the purpose of doing business. Despite character witness Former Senator George Mitchell, jurors found Bourke conspired with his business partners to bribe Azerbaijan officials so as to effectuate control of a state-run oil company. Jurors found Bourke had knowledge of the payments, or alternatively, should have known of the payments. The discussion online suggests the due diligence responsibilities of American business under the FCPA is now much broader.

The FCPA applies to actors on behalf of the American business (this includes employees, agents, and shareholders). A successful anti-bribery claim requires the government to prove beyond a reasonable doubt, among other things, that defendant knew that something of value was being offered to a foreign official. This knowledge element need not be actual; it could in fact be acquiesance or conscious disregard. What factual evidence constituted Bourke’s knowledge, or conscious disregard of, in this case? There was the tape: a 1998 conversation between Bourke and an investor discussing possible corporate structures to avoid civil and criminal liability, that included the topic of bribes. This corporate structure later arranged and paid for recipient Azerbaijan officials to fly to NYC for medical treatment. Bourke’s false statements to the FBI in 2002 regarding payments probably didn’t help the matter … There was also testimony: two of Bourke’s business partners – who in fact directly participated in the illegal payments – testified that Bourke knew his investment monies were going to Azerbaijan officials. The fact that both witnesses already plead guilty with prosecutors, or that the timing of some of the dates testified to were inconsistent, did not dissuade jurors of Bourke’s knowledge. If anything, jurors interviewed later said they found Bourke just simply should have known about the illegal payments; “he’s an investor[;] it’s his job to know.”

Sentencing is scheduled for October of this year; appeal is anticipated.

(Photo courtesy of Wikimedia Commons).