Following an oral ruling from the bench in U.S. v. Noriega, No. 2:10-cr-01031, on April 20, 2011, US District Judge Howard Matz, of the Central District of California, issued a written decision finding that officers and employees of a state-owned corporation can be “foreign officials” for purposes of the Foreign Corrupt Practices Act (FCPA). In Noriega, the US Department of Justice (DOJ) has alleged, among other things, that employees of the Lindsey Manufacturing Company bribed two high-ranking employees of Mexico’s Comisión Federal de Electricidad (CFE) in violation of the FCPA.1
Several of the defendants recently moved to dismiss the government’s First Superseding Indictment by challenging the DOJ’s interpretation of the term “foreign official”—which the FCPA defines as “any officer and employee of a foreign government or any department, agency, or instrumentality thereof”—as encompassing officers and employees of state-owned corporations. Relying heavily on the legislative history of the FCPA, defendants argued that, as a matter of law, no state-owned corporation can be an “instrumentality” of a foreign government and, thus, officers and employees of such entities could not qualify as foreign officials.
Rejecting this categorical argument, Judge Matz determined that the FCPA’s legislative history was “inconclusive” as to whether an “instrumentality” includes state-owned corporations. However, he also stated that if presented with the question as to whether the FCPA should in certain instances apply to state-owned corporations, he believed that Congress would not deem those entities completely outside the purview of the FCPA. Accordingly, Judge Matz held that state-owned corporations that share defining characteristics of departments and agencies fall within the ambit of “instrumentality.”
Judge Matz also provided a non-exhaustive list of these defining characteristics:
- The entity provides a service to the citizens of the jurisdiction;
- Government officials act as or appoint the key officers and directors of the entity;
- The entity is being financed, at least in large measure, through governmental appropriations, or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties;
- The entity is vested with and exercises exclusive or controlling power to administer its designated functions; and
- The entity is widely perceived to be performing official functions.
Judge Matz noted that the CFE possessed all of these characteristics: It supplies electricity to Mexican citizens; its governing board is comprised of various high-ranking governmental officials; it was created and is owned by the government of Mexico; it performs a function that the Mexican Constitution describes as solely a government function; and it describes itself on its website as a government agency.
With the denial of this motion to dismiss, the trial in Noriega continues, and the DOJ must now prove that CFE is an instrumentality of the Mexican government and that its officers and employees are, consequently, foreign officials.
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|1. For more information on the Noriega case, please see our April 7, 2011 Legal Update, “US Department of Justice Interpretation of “Foreign Official” Under the Foreign Corrupt Practices Act Affirmed by California District Court.”|