On Wednesday, May 18, Judge James Selna in California became the latest Judge to rule on the issue of whether the FCPA extended to payments made to employees of foreign state-owned companies. Judge Selna denied defendants’ motion to dismiss in U.S. v. Carson, holding that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact." As a result, the issue will be presented to the jury.
In ruling on the motion to dismiss, the Court concluded that issue could not be segregated from the evidence to be presented at trial. He noted that he could not simply assume as a matter of law that a state-owned company was an "instrumentality" under the FCPA, but there were several factors (none of which were dispositive) that must be considered:
• The foreign state’s characterization of the entity and its employees;
• The foreign state’s degree of control over the entity;
• The purpose of the entity’s activities;
• The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;
• The circumstances surrounding the entity’s creation; and
• The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).
The Court also concluded that the language of the FCPA was clear and that it was unnecessary to review the legislative history of the FCPA to determine if state-owned companies were instrumentalities under the Act, rejecting the argument that in the legislative history, 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 separate order issued on May 17, 2011, Judge Selna directed the parties to submit proposed jury instructions regarding the "instrumentality" issue by June 30, 2011 and scheduled a hearing for August 12, 2011. At present, the case is scheduled to be tried on June 5, 2012.
There are two other cases where defendants have raised the "foreign official" argument this Spring. As discussed here, in the Lindsey Manufacturing case, Judge A. Howard Matz rejected defendants’ motion to dismiss on this same issue, noting that "[u]nder the Mexican Constitution, the supply of electricity is solely a government function," and that Comisión Federal de Electricidad ("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, the CFE was an "instrumentality" of Mexico and therefore, its employees were "foreign officials." The Judge also found that "the legislative history [of the FCPA did] not clearly support either side’s contentions." Lindsey Manufacturing and three individuals were convicted in that case, but have accused the Government of misconduct during the Grand Jury proceedings as discussed here. In the other case, 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. That case is expected to be tried shortly.