Foreign Corrupt Practices Act: Central District of California Rejects Argument that State-Owned Corporations Can Never Be "Instrumentalities" of Foreign Governments

Foreign Corrupt Practices Act: Central District of California Rejects Argument that State-Owned Corporations Can Never Be "Instrumentalities" of Foreign Governments

By Iris E. Bennett, Jessie K. Liu and Sean J. Hartigan  Posted: June 16, 2011 in Business Law Today

"A recent judicial decision has now addressed, in part, the government's interpretation and provided some guidance for how to assess whether a state-owned or state-controlled company can be considered an "instrumentality" of a foreign government and thus whether such a company's employees are "foreign officials." In a rare FCPA case that has gone to trial against a company and individuals, the U.S. District Court for the Central District of California issued on April 20 a written opinion in United States v. Noriega et al., 2:10-cr-01031 (the Noriega Opinion), addressing the issue of whether a state-owned entity is always outside the FCPA's reach. Because of the posture of the defense motion, the court was not asked to address when such an entity actually is within the definition of "instrumentality," but only if there was no conceivable set of factual circumstances in which that could be proved. The court found:

• That a foreign state-owned or state-controlled corporation can be a government "instrumentality" within the meaning of the FCPA, and therefore that an employee of such a corporation can be a foreign official within the meaning of the statute;
• That the following characteristics can be considered in determining whether any particular state-owned or state-controlled corporation is a foreign government "instrumentality" under the FCPA:
• Whether the entity provides a service to the citizens of the jurisdiction;
• Whether key officers and directors are, or are appointed by, government officials;
• Whether and to what extent the entity is financed through government appropriations;
• Whether the entity is vested with and exercises exclusive or controlling power to administer its designated functions; and
• Whether the entity is widely perceived and understood to be performing official (i.e., governmental) functions."

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