On Tuesday, May 10, 2011, a federal jury convicted Lindsey Manufacturing Company (a privately-held company), its President Keith Lindsey, its Vice President Steve Lee and an intermediary, Angela Aguilar in an FCPA case. The charges were based on payments to employees of the Comisión Federal de Electricidad ("CFE"), an electric utility company owned by the government of Mexico, which were made in exchange for the CFE to award contracts to Lindsey Manufacturing. The case is notable for two different reasons: (1) Lindsey Manufacturing was the first corporate defendant to fully litigate FCPA charges through trial; and (2) Lindsey Manufacturing was one of the three recent cases where defendants raised the argument as to whether the FCPA extended to payments made to employees of foreign state-owned companies, an assertion which failed in this instance. UPDATE on May 16, 2011 – Professor Michael Koehler of the FCPA Professor Blog reports that Lindsey Manufacturing was NOT the first company to litigate an FCPA case all the way through trial: "That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial."
First, in a press release regarding the trial, Assistant Attorney General Lenny Breuer, called the verdicts "an important milestone" in the Department of Justice’s FCPA enforcement efforts. "Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last," Mr. Breuer said, "As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish." Lindsey Manufacturing is a smaller privately-held company, which may be one reason it was willing to proceed to trial, unlike publicly traded companies who may settle with government regulators (but, even so, may face additional problems with shareholders, as discussed here).
Second, in the Lindsey Manufacturing case, the Court rejected defendants’ motion to dismiss the FCPA claims based on the argument that the definition of "foreign official" does not include employees of foreign state-owned corporations. The "foreign official" issue is being watched closely in legal circles, as it has been raised in two other cases, as well. The Act 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). Defendants 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. Accordingly, defendants argued "foreign officials" did not include employees of state-owned companies. Judge A. Howard Matz rejected the arguments raised by defendants, noting that "[u]nder the Mexican Constitution, the supply of electricity is solely a government function," and that CFE was an electric utility company owned by the government of Mexico that was responsible for supplying electricity to all of Mexico other than Mexico City. The Court ruled 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."
There are two other cases where defendants have also raised the "foreign official" argument. One is U.S. v. O’Shea, Case No. 09-629 (S.D. Tex.), which also concerns payments to employees of the CFE. The motion to dismiss based on the "foreign official" issue is still pending in that case, but trial will be scheduled shortly, since Lindsey Manufacturing is completed (the two cases shared a common prosecutor). The other case, U.S. v. Carson, Case No. 09-077 (C.D. Cal.), involves alleged payments to multiple companies. The parties have fully briefed the "foreign official" issue and the Court heard oral argument on Monday, but has not ruled yet. Professor Mike Koehler’s Blog, the FCPA Professor, reported on the oral argument here.
After five weeks of trial, the jury in Lindsey Manufacturing took one day to find the company, President Lindsey and Vice President Lee guilty on all counts (one count of conspiracy to violate the FCPA and five counts of actually violating the Act). Ms. Aguilar, the intermediary, was found guilty of a single count of conspiracy to commit money laundering. Ms. Aguilar is presently scheduled to be sentenced on August 12, 2011, while the other three defendants are scheduled to be sentenced on September 16, 2011.
UPDATE on May 12, 2011 – Lindsey Manufacturing continues to fight the charges. For further discussion of the defendant’s motion seeking dismissal for prosecutorial misconduct, see here.