Federal Judge Rules That Officers of Foreign State-Owned Utilities Are Foreign Officials

In an oral ruling on April 1, 2011, United States District Judge A. Howard Matz held that officers of a state-owned utility could constitute “foreign officials” under the FCPA. The ruling paved the way for the criminal FCPA trial, in the matter of United States v. Lindsey Manufacturing Co., which began on April 5 in the Central District of California. The U.S. Justice Department faces similar challenges to its broad interpretation of the “foreign official” statutory term in two other closely watched cases.

In the Lindsey Manufacturing prosecution, the Government’s case focuses on Lindsey Manufacturing’s retention of Grupo Internacional de Asesores S.A. to serve as its sales representatives in Mexico to obtain contracts from Comisión Federal de Electricidad (“CFE”), Mexico’s state-owned utilities company. Prosecutors allege that Grupo used a portion of Lindsey’s commission to bribe CFE officials in exchange for awarding contracts to Lindsey Manufacturing.

The defendants’ motion to dismiss argued that Congress, in enacting the FCPA, did not intend for the statute to apply to bribes paid to employees of state-owned utilities such as CFE, and that extending the FCPA to such employees would render the Act untenably broad, particularly in nations where state-owned entities are more prevalent. The Government responded that the broader definition is needed to allow the U.S. to comply with the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, of which the U.S. is a participating member.

The judge’s decision was based on the nature of CFE and the “essential governmental function” that CFE performs.(6) Defence counsel further stated that the essential governmental function “appeared to be more important to his ruling than the legislative history” of the Foreign Corrupt Practices Act, and that “it was clear felt functioned as an agency or department of the Mexican government”, and “relied heavily” on the Mexican Constitution and Mexican law.(7)

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Federal Judge Rules That Officers of Foreign State-Owned Utilities Are Foreign Officials For Purposes of FCPA Liability, Apr 8, 2011

International Law Office, Apr 18, 2011