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Judge Denies Motion to Dismiss Based on Definition of Foreign Official in O’Shea FCPA Case

Posted in Criminal Charges in Securities Cases, Foreign Corrupt Practices Act

On January 3, 2012, Judge Lynn Hughes denied defendant John O’Shea’s Motion to Dismiss the Indictment against him. Mr. O’Shea’s Motion, which was filed in March 2011, argued that the Indictment failed to alleged that he bribed a "foreign official" because it only alleged that he bribed employees of a state-owned entity. Judge Hughes’ decision marked the fifth time the argument has been rejected. The case against Mr. O’Shea is now set to go to trial on January 11, 2012.

Mr. O’Shea was indicted in November 2009 on one count of conspiring to violate the FCPA, twelve counts of violating the FCPA, four counts of money laundering and one count of creating a false document to obstruct the Government’s investigation. Specifically, the Indictment alleges that Mr. O’Shea, while serving as the General Manager for Sugar Land, the Texas business unit of a U.S. subsidiary of a Swiss corporation, arranged and authorized payments to multiple officials at Comisión Federal de Electricidad ("CFE"), an electric utility company owned by the government of Mexico, in exchange for contracts to provide products and services to CFE.

In March 2011, Mr. O’Shea moved to dismiss the Indictment, arguing that, because the CFE was a state-owned company, its employees did not fall under the definition of a "foreign official." The FCPA defines a foreign official to include "any officer or employee of a foreign government or any department, agency, or instrumentality thereof …." 15 U.S.C. § 78dd-2(h)(2)(A). Mr. O’Shea argued, among other things, that CFE was neither a department, nor an agency, and that the legislative history revealed that Congress could have stated that the definition of "instrumentality" included state-owned companies (and had actually considered that language in a prior bill), but did not do so.

In a Management Order entered on January 3, 2012, Judge Hughes denied Mr. O’Shea’s Motion to Dismiss in a single sentence, without explanation. However, in the same order, the Court also stated that it would take judicial notice of several facts relating to CFE (which may have impacted his decision on the Motion to Dismiss): (1) CFE is a monopoly; (2) the Mexican Ministry of Energy, Mines, and State-Owned Industries sets requirements for the CFE; and (3) the President of Mexico appoints the CFE’s Director and its governing board. The Government had requested that the Court take judicial notice of several additional facts, which the Court elected not to do.

The argument regarding employees of state-owned entities has been raised in a number of cases recently. Indeed, Mr. O’Shea’s Motion was filed within weeks of two similar motions in other cases. The argument was raised in another high-profile FCPA case tried in 2011.

One of the motions was filed by three of the defendants in the Lindsey Manufacturing case, in which the charges were also based on alleged bribes paid to CFE officials. As discussed here, Judge A. Howard Matz rejected the arguments raised by defendants in that case, ruling that under its ordinary meaning, CFE was an "instrumentality" of Mexico and therefore, its employees were "foreign officials." Judge Matz also found that "the legislative history [of the FCPA did] not clearly support either side’s contentions." Although the defendants were convicted by the jury, that conviction was subsequently vacated for prosecutorial misconduct (as discussed here).

Another case, U.S. v. Carson, Case No. 09-077 (C.D. Cal.), involves alleged payments to multiple companies. As discussed here, in May 2011, Judge James Selna in California denied defendants’ motion to dismiss, holding that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact." The Court concluded that issue could not be segregated from the evidence to be presented at trial and that there were several factors (none of which were dispositive) that must be considered. The parties have submitted proposed jury instructions on the issue (some of which are discussed here) and the case is scheduled to be tried in June 2012.

In U.S. v. Esquenazi, Case No. 09-cr-21010 (S.D. Fla. Filed Dec. 4, 2009), the prosecution for FCPA violations involving bribes paid to Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), a state-owned telecommunications company in Haiti, defendant Joel Esquenazi raised the issue of whether payments to a employees of state-owned companies constituted a violation of the FCPA. As discussed here, the Court denied the motion to dismiss: "[t]he plain language of this statute and the plain meaning of this term show that as the facts are alleged in the indictment Haiti Teleco could be an instrumentality of the Haitian government." Mr. Esquenazi and a co-defendant, Carlos Rodriguez, were convicted in August 2011 and Mr. Esquenazi was sentenced to fifteen years in prison (as discussed here). According to Professor Mike Koehler’s Blog, the FCPA Professor, one of the issues raised by Mr. Rodriguez (who received a seven-year sentence) challenges the jury instructions given at trial on the "foreign official" issue.