United States: Court Decisions In The U.S. And China Bolster Law Enforcement's Ability To Prosecute Global Corporate Corruption

Last Updated: October 25 2014
Article by Carlos F. Ortiz, Mayling C. Blanco, Shawn M. Wright and Rither Alabre

Call to Action: Given the aggressive anti-corruption investigations in the U.S. and abroad, companies are well advised to adequately develop and implement a robust compliance program, including substantial internal controls, and conduct a thorough risk analysis as they begin or continue operating in the global arena.

U.S. Supreme Court's Silence Leaves Intact Broad Prosecutorial Discretion in FCPA Cases

On October 6, 2014, the United States Supreme Court declined to accept an appeal involving violations of the Foreign Corrupt Practices Act ("FCPA")—the U.S. statute that criminalizes the bribing of foreign officials. The Supreme Court's refusal to hear the appeal leaves in place a decision by a federal appellate court that gives U.S. prosecutors broad discretion in pursuing alleged violations of the FCPA.

In U.S. v. Esquenazi, the defendants, two former executives of a U.S. company, were convicted of violating the FCPA by bribing executives of a Haitian telecommunications company ("Teleco"). The defendants argued that the Teleco employees were not "foreign officials" since Teleco was not an instrumentality of the government. The FCPA defines a "foreign official" as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof." The statute, however, does not define what constitutes an "instrumentality" of a foreign government and that term was at issue in Esquenazi. The defendants' conviction was based on the determination that Teleco was an "instrumentality" of the Haitian government.

On appeal earlier this year before the United States Court of Appeals for the 11th Circuit, the defendants sought to limit the term "instrumentality" of a foreign government to "entities that perform traditional, core government functions." The 11th Circuit disagreed and ruled that an "instrumentality" under the FCPA is "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own." In other words, pursuant to the Esquenazi decision, a company may be considered an "instrumentality" of a foreign government for purposes of the FCPA even if the company performs what one would normally consider to be classic business/commercial functions. Although the 11th Circuit provided a list of non-exhaustive factors to consider when deciding whether an entity is an "instrumentality" of a foreign government, the decision has, in practice, given prosecutors broad discretion in their pursuit of alleged violations of the FCPA. In declining to accept the appeal in Esquenazi, the U.S. Supreme Court has left this ability intact.

Although the 11th Circuit decision is technically binding only upon federal district courts in Alabama, Georgia, and Florida, it is the only federal appellate court that has addressed the issue of "instrumentality" under the FCPA, therefore, practitioners can remain confident that federal courts throughout the country will be looking to Esquenazi for guidance until, that is, the Supreme Court decides to weigh in on the issue.

With Record Fine, China Joins the U.S. in Increasing Anti-Corruption Enforcement

On September 19, 2014, a court in Changsha, China, found the Chinese subsidiary of the British pharmaceutical and biotechnology company, GlaxoSmithKline ("Glaxo"), guilty of bribery, along with five employees of the company. The Chinese news agency reported that the company was fined approximately $500 million, the largest fine imposed by a Chinese court, while the employees, including a British national, received sentences between two and four years that have been temporarily suspended. The penalty and convictions followed a one-day trial held in secrecy. The Chinese authorities accused Glaxo of bribing hospitals and doctors across the country in various forms, including providing kickbacks through travel agencies and industry associations.

Glaxo continues to face corruption concerns in other foreign markets. News reports state that the company is under investigation by the Serious Fraud Office in the U.K. and may be under investigation by the U.S. Securities and Exchange Commission and the Justice Department. Additionally, the company disclosed last week that it is investigating whistleblower bribery allegations in the United Arab Emirates, as well as in Syria, Jordan, Lebanon, Iraq, and Poland.

With this prosecution, China joins a growing list of foreign governments imposing multimillion dollar fines on corporations for violations of their respective anti-corruption statutes. Glaxo is the latest and largest corporation falling target to China's anti-corporate corruption investigations, which do not appear to be slowing down. Media outlets report that recent corruption investigations in China involve foreign car and car-parts manufacturers and technology companies. Meanwhile, U.S. prosecutorial efforts do not do not appear to be waning either. The Wall Street Journal recently quoted James Koukios, senior deputy chief of the U.S. Department of Justice's criminal division's fraud section, as stating "It's fair to assume that the penalty amounts are not going to be going down" as the department has "more prosecutors and more resources than [it's] ever had before" dedicated to FCPA and so "you should expect that FCPA prosecutions are going to remain vibrant, aggressive and appropriate."

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