Author: Golumbic, Court E
Date published: October 1, 2011
II. The Foreign Corrupt Practices Act..................................................................... 5
A. The SEC Investigation and the Enactment of the FCPA ......................... 5
1. The 1988 Amendments ................................................................. 10
2. The 1997 OECD Convention & 1998 FCPA Amendments............ 12
B. Statutory Analysis of the FCPA............................................................ 14
1. Anti-Bribery Provisions ................................................................ 14
2. Accounting Provisions .................................................................. 17
3. Penalties .......................................................................................18
C. FCPA Enforcement .............................................................................. 19
1. History and Recent Trends............................................................19
2. "Instrumentalities" and "Foreign Officials"................................... 26
III. Sovereign Wealth Funds and the FCPA.......................................................... 29
A. Sovereign Wealth Funds Defined......................................................... 29
B. History and Development..................................................................... 31
C. The Impact of Sovereign Wealth Funds................................................ 33
D. Lessons Learned from State-Owned Enterprises............................. ...... 37
1. SOEs and Foreign Government Control ........................................ 39
2. Recent Judicial Challenges and an Opportunity Lost ..................... 41
IV. Conclusion: A Call for Guidance.................................................................... 45
The financial crisis of 2008-2009 brought staggering losses to many U.S. financial institutions.1 As these losses mounted, many institutions sought significant capital infusions to bolster their troubled balance sheets.2 For some, partial salvation came in the form of direct investments from sovereign wealth funds ("SWFs").3 Financial giants such as Blackstone, Carlyle Group, Citigroup, Merrill Lynch, Morgan Stanley and Standard Chartered raised funds from SWFs as traditional lenders were reluctant to make them available during the financial crisis.4 Defined as government-owned investment vehicles funded by foreign exchange reserves and export revenues that are managed separately from the official reserves of the government's monetary authorities, SWFs play an increasingly prominent role in global capital markets.5 Indeed, SWFs have grown substantially both in numbers and in total assets, and increasingly have taken significant ownership interests in U.S. public companies.6 This includes the billions of dollars SWFs invested in the aforementioned financial firms, providing stability and liquidity during one of the most tumultuous economic periods in history.7
The Foreign Corrupt Practices Act ("FCPA") prohibits the corrupt influence of "foreign officials" via the offer or payment of anything of value to such foreign officials, directly or indirectly, for the purpose of obtaining or retaining business.8 The United States Securities and Exchange Commission ("SEC") and the United States Department of Justice ("DOJ"), the agencies with enforcement authority under the FCPA, historically have applied the Act to industries like oil and gas, technology, pharmaceuticals, and medical supplies industries.9 In the past decade, however, both agencies have increased substantially their enforcement efforts, employing more aggressive investigative techniques and expanding their reach to encompass a wider array of targets.10 A recent "sweep" investigation into financial firms' dealings with SWFs has signaled the government's "intent to scrutinize an entire new area under the FCPA." ' '
This article examines the implications of extending the FCPA to SWFs, and in particular the potential application of the FCPA to SWFs' investments in U.S. financial firms and other companies. The article begins in Part II with a review of the legislative history of the FCPA, noting the absence of any clear expression of congressional intent to include private investment activity within its scope. Part II also contains an analysis of the FCPA's provisions, with particular focus on the terms "foreign official" and "instrumentality." The FCPA proscribes corrupt payments to "foreign officials," which are defined to include employees of government "instrumentalities." The term "instrumentality" has not been statutorily or judicially defined. To fill in the gap, the DOJ and the SEC have supplied their own definitions, enforcing the FCPA rigorously and construing its provisions broadly.12
Part III of the article provides an overview of SWFs, from their inception to their emergence as a significant force in modem capital markets. While some observers have expressed concern that SWFs' lack of transparency can be exploited to promote political agendas contrary to U.S. interests, the funds generally have been viewed as having a positive impact on the global economy.13 The role of the SWFs as a ready source of capital for the above-mentioned financial institutions in crisis is an illustration of this impact.14
Part III also examines the applicability of the FCPA to SWFs, drawing parallels to the government's successful efforts to characterize state-owned enterprises ("SOEs") as "instrumentalities."15 SOEs are entities at least partially owned by a government that operate like a corporation, funded with profits from operations and engaging in active investment activity.16 As reflected in a number of recent cases where corporate defendants settled FCPA charges with the government, the DOJ and the SEC have designated SOEs as "instrumentalities" - and thus their employees as "foreign officials" - even in cases where a foreign state owns significantly less than a majority ownership interest in the SOEs.17 Moreover, in a series of recent attempts by corporate and individual defendants to challenge the validity of this designation, the courts have consistently ruled in the government's favor.18 It is important to note, however, that in each of these cases the extent of government control has factored heavily in the government's decision to bring charges against SOEs.19 In evaluating the applicability of the FCPA to the activities of a SWF, then, control is the operative concept.
The final section of Part III explores the challenges the ambiguous definitions of "instrumentality" and "foreign official" present for U.S. companies seeking to solicit investments by SWFs. Because SWFs are wholly owned by foreign governments, their investments in U.S. companies could potentially convert these companies into "instrumentalities" in the eyes of the DOJ and SEC, thus subjecting their employees to scrutiny under the FCPA.20 This seems to be a logical and appropriate extension of the FCPA in cases where SWFs exercise majority ownership and/or affirmative control over a company in which they invest. When applied to the minority ownership interests SWFs have taken in U.S. financial firms and other companies, however, the logic and propriety is less clear. A SWF's simple minority stake should not, in isolation, render the FCPA applicable to the SWF.21 Among other things, the prospect of FCPA exposure may cause SWFs to avoid making significant investments in U.S. companies, depriving these companies of a ready source of capital.22
The article concludes in Part IV by arguing for a more restrictive definition of "instrumentality" and "foreign official." Specifically, Congress should amend, or the courts should interpret, the FCPA to identify the attributes of affirmative control a foreign government must exercise for a company to qualify as an instrumentality. Borrowing from the Foreign Sovereign Immunities Act,23 a presumption in favor of "instrumentality" status should be established when a U.S. corporation is majority owned by an entity such as a SWF. To provide more clarity in cases where SWFs are minority owners, Congress can similarly track a major international treaty to which the U.S. is a signatory: the Organization for Economic Cooperation and Development's "Convention on Combating Bribery of Foreign Public Officials in International Business Transaction."24 This treaty identifies the elements of control that give rise to a finding that an entity, such as a SWF, exercises "dominant influence" over a company, including majority voting rights and the ability to appoint directors.
By amending or interpreting the FCPA to incorporate such a "dominant influence" test, Congress or the courts will permit U.S. companies to make reasoned, fact-based judgments regarding their FCPA exposure when considering strategic transactions with SWFs.
II. The Foreign Corrupt Practices Act
A. The SEC Investigation and the Enactment of the FCPA
The FCPA is the primary mechanism by which the United States penalizes companies and individuals engaging in corruption abroad.25 Congress enacted the FCPA in 1977, in response to a disturbing pattern of American firms providing bribes to foreign public officials for competitive advantages.26 Specifically, during the Congressional "Watergate" investigation, which examined the connection between the Nixon Administration and the attempted burglary of the Democratic National Committee headquarters,27 investigators uncovered a pattern of illegal contributions by members of the corporate elite to the Nixon rélection campaign, as well as bribes and other "gifts" aimed at politicians in the United States and abroad.28 In response to this latter discovery, the SEC commenced a separate investigation into U.S. corporate bribery and corrupt activities.29 In May 1976, the SEC presented an initial report to Congress disclosing questionable payments or bribes by over 1 1 7 of the Fortune 500 companies relating to a wide range of transactions across several continents.30 By the conclusion of an SEC -sponsored, voluntary disclosure program, over 400 U.S. companies had self reported paying hundreds of millions of dollars in bribes.31
The FCPA addressed the concerns raised by the SEC 's investigation by prohibiting corporations from bribing foreign officials for purposes of securing improper business advantages.32 hi passing the Act, Congress expressed its objection to bribery on several grounds.33 First, it found the bribery of foreign officials to be unethical and "counter to the moral expectations and values of the American public."34 Bribery, Congress asserted, damages a company's image and can cast a shadow on all U.S. companies.35 Congress also found bribery unnecessary and, as a result, inefficient.36 Congress further concluded that the revelation of bribes can embarrass friendly governments and support the view that U.S. corporations corruptly influence those governments.37 Finally, Congress argued that a strong anti-bribery law would help U.S. corporations fend off improper demands by foreign officials.38 The over-arching objective of the FCPA, then, is the prevention of corporate corruption of foreign government officials.39
This objective is seen often throughout the legislative history of the FCPA. Initial hearings undertaken by subcommittees of the Senate and House of Representatives in the 94th Congress during the summer of 1975, for example, focused on bribery of government or political party members for business advantages within a foreign nation, particularly to the extent that these payments would have "important ramifications for [U.S.] foreign relations and economic interests."40 Later, as the issue was taken up again by the 95th Congress in the spring of 1977, the primary concern remained payments used to bribe government or political actors within foreign states. The Senate and House Reports,41 summarizing the origins, intent, and interpretation of the language contained in the two bills that would eventually become the FCPA, suggest the same - Congress never significantly departed from its effort to combat the foreign policy implications of American companies bribing foreign public officials.42
Notably absent in the record underlying the FCPA is any indication that the Senate or House contemplated that the legislation would encompass acts of bribery in the private context.43 This is not to say that testifying witnesses and individual members of Congress did not propose such measures.44 They were in the minority, however, and their proposals never gained traction.45 The overall focus remained on payments made to corrupt government or political actors within foreign states, and entreaties to consider commercial bribery within the scope of the proposed legislation were generally ignored.46
On December 20, 1977, President Carter signed the FCPA into law, marking the culmination of two years of intense congressional colloquy and debate.47
1. The 1988 Amendments
Congress amended the FCPA twice. In both instances, amendments were introduced to address concerns that the FCPA lacked clarity and imposed "unanticipated and unnecessary burdens" on U.S. business interests.48 Congress first amended the FCPA in 1988 to correct a perceived competitive disadvantage for American firms in the international market.49 While the FCPA prohibited American companies from bribing foreign officials, other countries had not adopted similar legislation and were thus able to avail themselves of bribery as a means to win business.50 Congress responded by instructing the President to negotiate with the OECD to establish laws similar to the FCPA in other countries.51 Additionally, Congress clarified the "grease payments" exception, which was originally couched in the definition of "foreign official."52 The amendment reframed it as an exception for "any facilitating or expediting payment to a foreign official ... the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official."53 Further, Congress refined the définition of "foreign official" to remove reference to the "ministerial or clerical" function associated with such employees.54
The amendments also added two affirmative defenses. The first permits conduct expressly allowed by the target country.55 The second defense allows "reasonable and bona fide expenditure [s], such as travel and lodging expenses . . . directly related to [either] the promotion, demonstration, or explanation of products or services or the execution or performance of a contract with a foreign government or agency."56 In addition, the 1988 amendments created a mechanism, the "Opinion Procedure," by which the DOJ would establish a means for interested parties to query the DOJ on the FCPA implications of a particular transaction and for the DOJ to "issue an opinion in response to that request."57
As with the record underlying the FCPA itself, the colloquy that preceded the 1988 amendments to the Act reflected no intent to address bribery in the private context. Occasional attempts to expand the FCPA' s scope to expressly cover government-owned private enterprises never came to fruition.58 Instead, Congress concentrated on "clarify [ing] the bribery provisions to make them enforceable and to provide clear standards of conduct for American businessmen."59
2. The 1997 OECD Convention & 1998 FCPA Amendments
Congress again amended the FCPA in 1998, in response to the December 17, 1997 signing of the OECD "Convention on Combating Bribery of Foreign Public Officials in International Business Transaction" (the "OECD Convention").60 The OECD Convention aimed to ensure that the major global market nations took measures to criminalize transnational acts of bribery and corruption.61 It was the product, in part, of U.S. diplomatic efforts to standardize global practices, as called for in the 1988 amendments to the FCPA.62 Among the OECD Convention's most significant contributions were provisions standardizing the definitions and elements of criminal bribery offenses.63
Unlike the FCPA, the OECD Convention defined "foreign officials" in a way that would encompass employees or other individuals associated with private-sector enterprises.64 Specifically, the convention included "any person exercising a public function for a foreign country, including for a public agency or public enterprise" within the scope of the term "foreign public official."65 "Public enterprise" was further defined as "any enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence."66 A "dominant influence" was determined to be present when, among other things, "the government or governments hold the majority of the enterprise's subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise's administrative or managerial body or supervisory board."67
The United States' participation as a signatory to the OECD Convention compelled Congress to introduce a number of conforming changes to the FCPA. These included: a specific ban on payments to secure "any improper advantage;" expanded liability encompassing "any person," not just issuers and domestic concerns; assertion of jurisdiction over offenses committed abroad;68 and amended penalties to eliminate disparities between U.S. nationals and non-U.S. nationals employed by or acting as agents of U.S. companies.69 Congress also modified the definition of "foreign public official" to include officials of public international agencies or organizations.70 Yet, the language from the OECD Convention covering individuals associated with "public enterprises" - including the precise standards of ownership and control that would render a private concern such an enterprise - were conspicuously not incorporated.71
The 1998 amendments to the FCPA, much like the amendments enacted ten years earlier, reflect Congress' desire to strike a balance between curbing bribery of foreign public officials and maintaining the viability of American business interests abroad. Both sets of amendments sought to clarify many of the Act's more ambiguous terms so as to facilitate this balance. They provided no clarity, however, with respect to the FCPA's application to private sector affairs, despite Congress having been presented with several opportunities to do so.
As discussed more fully in Part II, the absence of congressional action in this area left a void that the DOJ and SEC would later seek to fill through enforcement proceedings.72
B. Statutory Analysis of the FCPA
The FCPA provides criminal and civil mechanisms for penalizing firms or individuals engaging in activity linked to foreign corruption. The Act includes two categories of rules: anti-bribery provisions73 and accounting provisions.74
1. Anti-Bribery Provisions
The anti-bribery provisions of the FCPA proscribe the bribery of "any foreign official . . . any foreign political party or official thereof or any candidate for foreign political office . . . [or] any person with knowledge that the person will provide payment to any of the above entities."75 The FCPA defines "foreign official" as:
[A]ny officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.76
Notably, the FCPA does not define what constitutes an "instrumentality" of a foreign government.77 As discussed more fully in Part III below, this is problematic given that the DOJ considers every employee of an instrumentality - regardless of rank or position - to be a foreign official.78
The FCPA specifically bans "corruptly" made,79 direct or indirect80 payments of any value to these foreign officials81 by domestic securities issuers, domestic concerns, or other persons or entities engaging in foreign corruption for business purposes while on U.S. territory.82 Included within the scope of this provision are the directors, stockholders, officers, employees, and agents of companies or corporations that fall under the scope of the FCPA.83 While foreign officials and corporations are generally beyond the scope of the FCPA,84 foreign individuals and domestic agents or subsidiaries of foreign corporations can be prosecuted or held liable.85 The FCPA bribery provisions apply to acts committed within the territory of the U.S. or by U.S. persons or entities outside of U.S. territory.86
The requirement that acts of bribery must be "corruptly"87 made requires that the violator possess the intent to "influencfe] any act or decision of such foreign official in his official capacity, induc[e] such foreign official to do or omit to do any act in violation of the lawful duty of such official, . . . secur[e] any improper advantagef,] or induc[e] such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality[.]"88 The offense must "make use of the mails or any means or instrumentality of interstate commerce"89 to make "an offer, payment, promise to pay, or authorization of the payment of any money"90 to the recipient of the bribe.
There are three affirmative defenses to FCPA violations. The FCPA allows: (1) "grease" payments where the purpose is to "facilitate" or expedite routine, non-discretionary government services,91 (2) gifts in accordance with the written law of the country where the gift is given,92 and (3) "reasonable and bona fide expenditure[s]" relating to the individual or corporation's products or services or to the execution of a contract with the foreign government or agency.93
The DOJ exercises near-exclusive enforcement authority concerning the bribery provisions of the FCPA.94 The SEC may act against issuers in the civil context, seeking administrative fines and penalties.95 Civil investigations may (and often do) proceed in parallel with criminal investigations,96 and SEC civil investigations can serve as triggers for DOJ criminal investigations should evidence of criminal wrong-doing be uncovered.97 Historically, SEC investigations under the anti-bribery provisions have generally focused on a nexus between acts of international bribery and violations of the record-keeping and disclosure provisions by U.S. issuers.98
2. Accounting Provisions
The FCPA contains requirements for recordkeeping and disclosure by securities issuers registered under Section 15 of the Securities Act of 1933 (the "33 Act") and Section 12 of the Securities Exchange Act of 1934 (the "34 Act").99 Issuers governed under the 33 or 34 Acts are required to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer"100 and to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" of being in accordance with general business practices. 101 The recordkeeping provisions apply to foreign subsidiaries of U.S. issuers when the issuer is a majority owner.102 These "internal accounting controls" are evaluated holistically by the SEC, which has encouraged issuers to create audit committees to ensure full compliance.103 The accounting provisions of the FCPA are designed to prevent the creation of falsified records and the mislabeling or omission of records indicating improper behavior.104
The SEC generally enforces most violations of the record-keeping provisions of the FCPA.105 Criminal liability for accounting violations can only be imposed when an entity "knowingly circumvent[s] or knowingly fail[s] to implement a system of internal accounting controls or knowingly falsifies] any book, record, or account."106 All other errors merit civil penalties.
Violations of the FCPA are subject to both civil and criminal penalties. For criminal violations of the anti -bribery provisions by domestic or foreign entities, the FCPA authorizes fines of up to $2 million per violation or under the Alternative Fines Act, up to twice the benefit that the entity sought to obtain by making the corrupt payment, whichever is greater.107 Officers, directors, employees, or agents of domestic or foreign entities can be sentenced to up to five years of imprisonment per violation, plus a fine of up to $100,000 or twice the benefit the individual sought to obtain.108 The Sarbanes-Oxley Act amended the criminal penalties associated with the record-keeping and control requirements of the FCPA. Corporations now may be fined up to $25 million, and individuals may be punished by up to a $5 million fine and 20 years of imprisonment.109 DOJimposed sanctions can also include forfeiture.110 Importantly, corporations are unable to indemnify their employees or officers for these fines.111
For all provisions of the FCPA, the SEC can impose civil fines of up to $10,000 per violation against any issuer, as well as any officer, director, employee, or agent of the issuer. ' 12 The DOJ can also seek civil fines of up to $10,000 per violation against any person or entity subject to the FCPA.113 In an SEC enforcement action, the court may also impose an additional fine not to exceed the gross amount of the pecuniary gain to the defendant as a result of the violation or a specified dollar range based on which statutory tier the violation falls under. I14 Civil penalties range from $5,000 to $10,000 per violation for a natural person and $50,000 to $500,000 for any other person.115 The SEC is also empowered to impose disgorgement of ill-gotten gains for FCPA violations, often adding significantly to the monetary penalty resulting from FCPA violations.116 Lastly, the DOJ or the SEC may seek injunctive relief against any entity or employee that is engaging, or about to engage, in a violation of the FCPA.117
C. FCPA Enforcement
1. History and Recent Trends
For approximately twenty-five years following its enactment, efforts to enforce the FCPA were less than robust. During this period a combined total of only sixty cases were brought by the two agencies, generating approximately $35 million in fines.118 Following a rash of corporate accounting scandals in the early part of the twenty-first century, however, the DOJ and SEC began ratcheting up FCPA enforcement.119 The number of FCPA investigations undertaken by the DOJ and the SEC rose from an average of three per year in the period of 1978-2000120 to more than fifteen per year in the period of 2002-2009.121
This modest increase in enforcement activity pales in comparison to current efforts. U.S. authorities are investigating possible FCPA violations with greater intensity than ever before, bringing more cases, announcing more settlements and receiving more fines.122 In 2010, the DOJ and the SEC brought seventy-four enforcement actions under the FCPA, up from forty such actions in 2009.123 The agencies levied $1.885 billion in fines in 2010, compared to $2.7 million in 2002.124 The average fine or penalty paid to the DOJ or the SEC per investigation by corporations rose to $25.1 million in 2010 from $300,000 in 2002.125 Half of the top ten largest ever FCPA penalties occurred in 2010.126 In many cases - particularly those pursued both criminally and civilly - the SEC targeted the violators' illgotten gains through its disgorgement enforcement mechanism, which had the effect of dramatically increasing the penalties imposed.127
The heightened focus on FCPA enforcement has accompanied structural changes in the law enforcement agencies charged with investigating violations of the FCPA. The DOJ and the SEC have both increased the number of personnel for whom the FCPA is a significant element of their remits.128 The DOJ now employs more than one dozen prosecutors in its Fraud Section who are tasked exclusively with bringing FCPA cases.129 In addition, the Asset Forfeiture and Money Laundering Section has launched a new initiative targeting the proceeds of foreign corruption in the U.S.130 The SEC has formed a special unit dedicated specifically to FCPA enforcement.131 So too did the FBI, which created a FCPA task force dedicated to such investigations.132 Through these staffing increases, the DOJ and the SEC have effectively placed the business community on notice that FCPA enforcement will continue at a brisk pace and that the current approach to enforcement, namely the aggressive pursuit of any perceived violation, will remain in effect on an ongoing basis.
Beyond personnel changes, the DOJ and SEC have rolled out new, highly aggressive investigative techniques in pursuit of FCPA violators. Of particular note among these new enforcement tools is the agencies' use of industry-wide sweeps. An industry-wide sweep is a process whereby the law enforcement agencies "examin[e] the suspected misconduct of one company and then expandf] the probe to other companies in the industry and its supply chain, suspecting that competitors operating in the same country likely were engaging in similar misconduct."133 Perhaps the first notable example of an FCPA-related sweep is the enforcement action targeting six companies in the petroleum industry that emerged from an initial DOJ inquiry into the activities of the freight company Panalpina World Transport.134 Similar sweeps have been undertaken in the tobacco, pharmaceutical, and medical device industries.135 hi one recent industry sweep relating to defense contractors, the DOJ employed an elaborate, undercover sting operation - a dramatic illustration of the more proactive nature of FCPA investigation.136 The sweep of financial services firms in early 2011, the first ever in the sector, only reinforces the conclusion that the use of this tactic as an investigative tool is on the rise.137
In addition to more robust investigative techniques employed by both the DOJ and the SEC, the SEC in particular has new weapons in its arsenal that will assist it in bringing more FCPA cases. The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank")138 requires the SEC to establish a program whereby whistleblowers who report securities law violations can receive between ten and thirty percent of any penalty assessed.139 On May 25, 2011, the SEC adopted final rules implementing the whistleblower provisions of the Dodd-Frank Act,140 and at least one report indicates that tips of FCPA violations have already begun pouring in.141 The SEC has alsoimplemented an initiative designed to incentivize self-reporting of violations of federal securities laws by offering deferred prosecution agreements ("DPAs") in exchange for cooperation.142 On May 17, 2011, the SEC entered into a DPA with Tenarie, S.A., a Luxembourg-based manufacturer, resolving an investigation into Tenaris' alleged violations of the FCPA - marking the first case in history in which the SEC has used this form of resolution in the enforcement context.143
The DOJ has further ramped up its prosecution of individuals in the last few years. In 2009, thirty-three individuals were named in enforcement actions involving FCPA violations.144 In 2010, that number increased to fifty-three, with twenty-two indictments coming from an undercover sting of various companies in the military and law enforcement product industries - the first large-scale FBI sting of its kind.145 The DOJ's expanded focus on individuals has included not just corporate employees but intermediaries, like agents and consultants, as well.146 Public statements by a high-ranking DOJ official suggest that this enhanced scrutiny of individuals is a trend that is not likely to abate.147
Finally, corporations or individuals violating the FCPA can no longer easily seek cover abroad.148 Over the past several years, the DOJ and SEC have increasingly worked with their foreign counterparts to investigate and prosecute parallel bribery and corruption cases.149 These efforts at international cooperation are facilitated by the implementation of fifty-six new extradition and mutual legal assistance treaties.150 U.S. outreach efforts have also worked to enhance international cooperation; the DOJ having provided recent assistance to approximately thirty-five countries in establishing and developing anti-corruption regimes.151
Moreover, many nations, including those which are signatories to the OECD Convention, are in the process of establishing anti-bribery or anti-corruption laws, or strengthening their existing legal regimes.152 The U.K. Bribery Act ("UKBA"), enacted in 2010 and characterized by one U.S. expert as the "FCPA on steroids," is a dramatic and highly visible example of this latter trend.153 Countries such as Brazil, India, Russia, Taiwan, and Ukraine are also in the process of strengthening their anticorruption laws.154 Even the People's Republic of China, which has been criticized as having a poor track record on anti-corruption enforcement, recently passed new legislation criminalizing official corruption.155 Perhaps most remarkably, Nigeria - a nation often viewed as the world's most corrupt - has recently increased its own enforcement efforts in this context, having initiated an investigation into entities and individuals alleged to have bribed Nigerian government officials in connection with several multibillion dollar natural gas contracts.156
Together, these attributes of recent FCPA enforcement - increased law enforcement resources, more proactive enforcement techniques, and the promotion of global cooperation - indicate that the FCPA has entered into a "new era."157 As discussed more fully below, the extension of FCPA enforcement efforts to new industries suggests that it is an era that is "here to stay."158
2. "Instrumentalities" and "Foreign Officials"
In another example of the prevailing emphasis on FCPA enforcement, the U.S. government has broadened the scope of the industries it targets.159 Historically, the FCPA was thought of as applying mostly to resource-extraction industries doing business in overseas markets.160 Yet in recent years, the DOJ has brought FCPA actions involving telecommunications, construction, and manufacturing industries, among others.161 The SEC sweep of the financial services sector represents the most recent incursion into previously uncharted waters.162 The DOJ and SEC have justified their forays into these new industries with an increasingly expansive view of what makes an enterprise an "instrumentality" of a foreign government and, therefore, what makes employees of such enterprises "foreign officials." Neither agency has offered much in the way of guidance regarding how these terms are defined, however.163 Yet, as discussed more fully in Section ILD. below, they have aggressively pursued cases involving bribes to employees of SOEs and various other entities over which foreign governments exercised some form f control.164
Despite the U.S. government's aggressive interpretation of the FCPA's provisions, virtually no corporate defendants, big or small, have contested FCPA charges in court for the past two decades.165 A challenge of this sort would require the business to be criminally indicted, which is generally regarded as tantamount to a "corporate death sentence."166 Instead, corporations routinely settle FCPA charges through nonprosecution agreements ("NPAs") and deferred prosecution agreements ("DPAs"), a practice which has essentially excused the U.S. government from providing any real justifications for its interpretations of the Act.167 Per these agreements, the enforcing agency consents not to indict the alleged offending company provided that the company ceases violating the statute, undertakes a series of measures to improve its compliance procedures, and, often, pays a substantial fine.168 Since NPAs are not subject to judicial review and DPAs are only reviewed on a limited basis, the result is extremely limited case law on the provisions of the FCPA.169
The government seems perfectly content with the lack of judicial definitions of "foreign official" and "instrumentality."170 Indeed, while acknowledging the ambiguity of the definition of "foreign official" in a November 2009 speech, Assistant Attorney General Breuer nonetheless declined to provide guidance on the issue, yet affirmed the DOJ's commitment to aggressive FCPA enforcement:
As important for your clients, consider the possible range of "foreign officials" who are covered by the FCPA:
Some are obvious . . . [b]ut some others may not be .... Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a "foreign official" within the meaning of the FCPA .... The Criminal Division stands ready to ferret out this illegal conduct and we are uniquely situated to do so.171
III. Sovereign Wealth Funds and the FCPA
With an increasing number of enforcement actions, larger fines, and an ever-expanding definition of "foreign official," the SEC's recent inquiry into financial firms' dealings with SWFs is a cause for concern for the funds and for U.S. firms seeking to solicit their investment capital.
A. Sovereign Wealth Funds Defined
There is no standard definition for what constitutes a SWF.172 The U.S. Department of the Treasury defines a SWF in general terms as "a government investment vehicle which is funded by foreign exchange assets, and which manages those assets separately from official reserves of the monetary authorities."173 Other sources, such as the Sovereign Wealth Fund Institute, provide a more detailed description:
A Sovereign Wealth Fund is a state-owned investment fiind composed of financial assets such as stocks, bonds, real estate[,] or other financial instruments funded by foreign exchange assets. These assets can include: balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports. Sovereign Wealth Funds can be structured as a fund, pool, or corporation. The definition of sovereign wealth fund exclude [sic], among other things, foreign currency reserve assets held by monetary authorities for the traditional balance of payments or monetary policy purposes, state-owned enterprises (SOEs) in the traditional sense, government-employee pension funds, or assets managed for the benefit of individuals. 174
However broadly or narrowly they are defined, SWFs generally share the following common elements: 1) state-ownership;175 2) funding from foreign exchange reserves or excess export revenues;176 3) limited explicit liabilities;177 and 4) management separate from ordinary, official foreign exchange reserves.178
SWFs exist for a variety of reasons. They stabilize the revenues of and provide accumulated savings for resource-rich nations that benefit from high commodity export prices.179 They also invest excess government revenue resulting from inflexible exchange rate regimes.180 Some Asian nations, such as China and Singapore, use SWFs to recycle their large trade surpluses outside their homelands, including in the United States, "where they in effect finance our nation's chronic trade deficit."181 Importantly, SWFs are more than an average profit-seeking institution.182 Their "sovereign" nature also allows them to assist in the country's "economic strategic development."183
B. History and Development
While the bulk of SWF creation and activity has occurred within the past twenty years, the existence of these funds dates back to 1953, when the Kuwaiti government established the Kuwait Investment Board with the "aim of investing surplus oil revenues."184 In the 1970s, additional funds were established by several petroleum-rich states, seeking to invest the proceeds of their natural resources,185 and certain Pacific-rim states, which aimed to enhance gains from other government revenues.186 These SWFs developed as reserves rapidly exceeded the amount needed for balance of payment support, and the reserve managers sought to maximize returns on assets.187 The increased globalization of the world economy in the years following the end of the Cold War saw the establishment of additional funds as many states, particularly oil producers and Asian nations with strong manufacturing bases and trade surpluses, began to accumulate massive amounts of global foreign asset reserves.188
SWFs have grown from their humble origins in the 1950s189 to become large and increasingly important players in international capital markets.190 Since 2000, the number of SWFs in existence has more than doubled, with twenty new funds launching during this period.191 Asset holdings have increased rapidly as well; recent estimates of worldwide SWF holdings are in the range of $2-4 trillion.192 "[S]everal SWFs already have estimated assets under management ("AUM") that dwarf those of the world's largest private-equity funds[.]"193
The influence of SWFs will almost certainly increase over time as authorities predict continued growth in SWF-held assets.194 International Financial Services London "estimates that the value of SWF-held assets will increase to an approximate $5.5 trillion by the end of 2012."195 U.S. authorities have estimated that by 2015 the aggregate value of SWF-held assets may reach $12 to $15 trillion.196 Today there are more than forty SWFs in existence worldwide, reflecting investment from more than two dozen nations.197
C. The Impact of Sovereign Wealth Funds
In the past decade, SWFs have pursued a more aggressive investment strategy, focusing on acquiring equity in foreign firms.198 During this period, many funds have actively sought stakes in companies through cross-border mergers and acquisitions or by acquiring minority stakes.199 These investments have amounted to approximately $187 billion.200 Based on recent trends, at least one expert has predicted that, over time, SWFs will be "collectively and perhaps individually, the largest shareholders in many of the world's biggest companies."201 Currently, many SWFs appear content serving as passive investors, "model minority owner[s]" of public companies.202 While there have been reports that certain SWFs are beginning to abandon their roles as passive investors and move from holding preferred shares to common shares with voting rights, these are relatively rare occurrences and do not reflect the vast majority of SWF investments.203
The ascendancy of SWFs has caused some concern among some U.S. officials and economists.204 This concern centers on the lack of transparency regarding the funds' investments and objectives, which has led some experts to question the motivations of the state sponsors of the SWFs.205 Given that foreign governments manage SWFs, they argue, the funds' incentive structures may not be entirely focused on profitmaximization and may instead reflect political or national agendas.206 The prospect that SWFs can be manipulated for political purposes may be exacerbated when regimes face instability, as recently was the case in Libya and several other Middle Eastern states.207 As a practical matter, however, the arguments against SWF investment on such grounds appear more rooted in fear than in fact.208 Simply put, there is little evidence that any SWF has actively sought to leverage its assets for political purposes.209 In any event, nations appear to be responding to calls to render their SWFs more transparent.210
Despite the criticism, numerous market observers, including the U.S. Treasury Department, have emphasized the positive roles that SWFs play in the modem economy.211 SWFs may be credited for recycling international savings, adopting long-term investment growth strategies, and contributing to the economic and structural development of their home markets.212 Recent investment activities by SWFs have directed capital to developing economies, and there have been calls for the World Bank "to raise and manage commercial capital from sovereign funds for equity investments in some of the poorest developing countries."213 Ultimately, SWFs may serve as one of the more dynamic and powerful sources for expanding opportunities in developing economies, permitting these countries to leverage their own resource wealth to become shareholders in Western markets.214
Investments by SWFs in public companies have also been recognized as a vital source of stability and liquidity.215 As discussed in Part I above, the funds were widely seen as providing a stabilizing effect when they injected capital into many western financial institutions immediately prior to and during the recent economic crisis.216 A $7.5 billion investment by SWF Abu Dhabi Investment Authority ("ABIA"), for example, helped rescue Citigroup, which had witnessed an 87.2 percent drop in its stock price between January 2007 and December 2008.217 Indeed, between January 2007 and December 2009, eight SWFs had invested in excess of $41 billion in U.S. financial giants Citigroup, Morgan Stanley, Merrill Lynch, Blackstone, Standard Chartered and the Carlyle Group.218 The ownership interests ranged from a 1.6 percent stake the Kuwaiti Investment Authority ("KIA") took in Citigroup to an 11.3 percent interest Temasek, a Singapore-based SWF, took in Merrill Lynch.219 By injecting funding when "risk-taking capital was scarce and market sentiment was pessimistic," SWFs were credited with insulating these institutions from even more damage during the financial crisis.220
D. Lessons Learned from State-Owned Enterprises
Until the recent SEC sweep, the U.S. government had not previously applied the FCPA to the activities of SWFs.221 However, the DOJ and SEC have aggressively targeted another form of governmentcontrolled entity acting in the private markets - SOEs.222 SOEs are legal entities established under a sovereign's company law that act like a corporation, reporting directly to the government as the majority or sole shareholder.223 SOEs often result from a political decision to retain government ownership.224 One of the principle distinctions between SOEs and SWFs is the way the two entities are funded and managed. As previously discussed, SWFs are funded by government reserves, export revenues, and their own investment returns.225 They are usually passive investors that do not seek controlling interests in companies.226 SOEs, on the other hand, though they can be created through government grants, are generally funded via the companies' own profits.227 SOEs are thought of more as corporations engaged in profit-driven activities and may invest with the purpose of acquiring control of a private, foreign economic entity.228 While many commentators have noted that SOEs and SWFs are so distinct that they cannot be conflated,229 others have found the distinctions illusory.230 As one commentator notes, "SOEs can invest, and SWFs can acquire controlling interests in operating entities, and thus become, at least indirectly, SOEs."231 Thus, despite their many differences, SOEs and SWFs are sufficiently similar that the DOJ's and SEC's treatment of these entities is instructive with regard to SWFs. The government has repeatedly considered SOEs to be "instrumentalities," thus making their employees "foreign officials."232 Indeed, federal investigations predicated on characterizing employees of SOEs as "foreign officials" working for state "instrumentalities" have accounted for more than half of recent FCPA cases.233 The DOJ and SEC have "interpreted the term 'foreign official' to include, for example, officials at state-owned oil and oil services companies, airport officials, employees of a regional health fund, physicians and laboratory employees at government-owned hospitals, and employees of a government-owned bank."234
1. SOEs and Foreign Government Control
The DOJ and the SEC have successfully applied the FCPA to SOEs even in situations where the foreign state owns less than a majority of the company, as evidenced by several recent cases where corporate defendants settled FCPA charges.235 In United States v. Kellogg Brown & Root LLC,236 a 2009 action against Halliburton Company and its former engineering and construction unit, Kellogg, Brown & Root, Inc. ("KBR"), the DOJ accused KBR of bribing various Nigerian officials to obtain and perform engineering, procurement, and construction contracts related to off-shore Nigerian natural gas facilities, charges to which KBR ultimately plead guilty.237 Included among the recipients of illicit payments were employees of Nigeria LNG Ltd ("NLNG").238 Despite the fact that the Nigerian government held only a forty-nine percent stake in NLNG, the DOJ nevertheless asserted that these employees were "foreign officials" within the meaning of the FCPA.239 In 2010, the DOJ charged Alcatel-Lucent with making improper payments to employees of Telekom Malaysia Berhard ("TMB"), a Malaysian telecommunications company, in exchange for nonpublic information relating to ongoing public tenders for which AlcatelLucent' s Malaysia subsidiary was competing.240 hi entering into a DPA with the DOJ, Alcatel-Lucent assented to the government's allegation that the employees of TMB, which was forty-three percent owned by the Malaysian government, were "foreign officials" for FCPA purposes.241 Most recently, in April 2011 Comverse Technology entered into a DPA with the SEC in which the company did not contest charges that it violated the FCPA's accounting provisions by failing to accurately record in its books and records payments made to employees of Hellenic Telecommunications Organization ("OTE") in exchange for purchase orders for Comverse's products and services.242 OTE was a telecommunications provider in which the Government of Greece held between a thirty-three and thirty-eight percent ownership interest during the relevant period.243 Although enforcement of the books and records provisions does not require the presence of a "foreign official," the SEC 's references to Greece's ownership stake is nevertheless indicative of the government's willingness to invoke the FCPA against SOEs that are only minority owned by foreign states.244
While at least one prominent scholar has cited these cases as establishing a new 'limbo low' for an otherwise commercial enterprise to be deemed an 'instrumentality' of a foreign government, and thus employees of the enterprise to be deemed 'foreign officials,'245 a closer examination of the government's charges suggests that it adopted a more nuanced approach. The DOJ and the SEC do not appear to have predicated their allegations of "instrumentality" and "foreign official" status on the mere fact the SOEs at issue had foreign governments as partial shareholders. Rather, they focused on the fact that in each case, the foreign state in question exercised a significant degree of control over the SOE despite holding a less than majority stake. In KBR, for example, the DOJ alleged that the Nigerian government "exercised control over NLNG" through board members appointed by the Nigerian National Petroleum Corporation.246 NLNG's control "includefd] but [was] not limited to the ability to block the award of the engineering, procurement, and construction contracts KBR was coveting from the Nigerian government.247 In Alcatel-Lucent, the DOJ averred that the Malaysian Ministry of Finance "had veto power over all [of TKM's] major expenditures, and made important operational decisions."248 The Malaysian government also "owned its interest in ... [TKM] through the Minister of Finance, who had the status of a 'special shareholder.'"249 Even in the SEC's charges in Comverse, although comparatively cryptic with respect to the OTE, noted that the company was "controlled and partially owned by the Greek government."250 Thus, control over the strategic decisions and business affairs over the SOE appears to have been the operative concept.
2. Recent Judicial Challenges and an Opportunity Lost
The government's wide prosecutorial latitude with respect to SOEs has survived unprecedented challenges in federal district courts. In a series of recent cases, United States v. Noriega ("Lindsey"),251 United States v. Carson ("Carson"),252 and United States v. O 'Shea ("O 'Shea")253 corporate and individual defendants alike have moved to dismiss the DOJ 's FCPA charges, arguing that SOEs do not qualify as "instrumentalities" under the FCPA.254 The defendants in all three cases made similar arguments, which were grounded in principles of statutory construction, legislative history, public policy, and due process.
Defendants have contended, for example, that as a matter of statutory construction the meaning of "instrumentality" should be gleaned from the other two operative terms in the definition of foreign official: "department" and "agency."255 Because SOEs do not always share the characteristics of departments and agencies (i.e., performing governmental functions), they can never be considered instrumentalities.256 Defendants have also argued that the legislative history of the FCPA does not reflect a congressional intent to include SOEs within the definition of "instrumentalities."257 From a policy perspective, defendants have argued that the government's interpretation, if carried to its logical conclusion, would lead to "absurd results" - suggesting, for example, that if the government's view were to prevail, employees of General Motors and AIG would be considered "instrumentalities" of the U.S. government because of the recent government bailouts of both companies.258 Finally, defendants have averred that any ambiguity in the statute be construed in defendants' favor and that if the government's broad interpretation is correct, then the FCPA is unconstitutionally vague.259
The Lindsey and Carson defendants' challenges to the government's definition of "instrumentality" and "foreign official" were resolved in the spring of 2011. On April 1, 2011, in Lindsey, Judge A. Howard Matz denied corporate defendant Lindsey Manufacturing, Inc. 's motion to dismiss the DOJ's FCPA indictment charging the company with bribing officials of CFE, a utility company owned by the Government of Mexico. Judge Matz found that CFE is an "instrumentality" of the Mexican government and its employees are "foreign officials."260 Judge Matz held that "a state-owned corporation having the attributes of CFE may be an instrumentality of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation . . . may therefore be 'foreign officials' within the meaning of the FCPA."261 Construing the term "instrumentality" in light of the two words preceding it, "agency" and "department," Judge Matz set forth a non-exhaustive list of attributes that would qualify an entity, such as an SOE, to be an instrumentality: (1) the entity provides a service to the citizens or inhabitants of the jurisdiction; (2) the key officers and directors of the entity are, or are appointed by, government officials; (3) the entity is financed in large measure by the government; (4) the entity is vested with and exercises exclusive or controlling power to administer its designated functions; and (5) the entity is widely perceived and understood to be performing governmental functions.262 Judge Matz considered the undisputed facts regarding CFE and found that it shares characteristics typical of agencies and departments (e.g., it performs a function the Mexican nation has described as a quintessential government function - the supply of electricity).263
On May 18, 201 1, Judge James V. Selna denied a similar motion in Carlson, and in so doing reinforced Judge Matz' s ruling that SOEs may be considered instrumentalities under the FCPA.264 In Carson, the defendants, former executives of Control Components, Inc., moved to dismiss the DOJ's indictment alleging that they violated the FCPA by making numerous, improper payments to employees of Chinese, Malaysian, South Korean, and United Arab Emirates-based SOEs.265 In their motion, the defendants argued that "if the Government's view were adopted, even the janitor of a state-owned enterprise would be considered a government official."266 In opposing the defendants' motion, the DOJ stated that it did not view the defendants' extreme examples as falling within the ambit of the term "foreign official," observing that "not all SOEs are, as a matter of law, agencies and instrumentalities."267 "[S]ome SOEs may be instrumentalities," it asserted, "depending on the facts related to the entity."268 The government did not offer a view, however, about the kind of factual scenarios that would cause an SOE to fall outside the scope of the term instrumentality.269
In rejecting the defendants' motion to dismiss, Judge Selna concurred with the DOJ view that whether an SOE qualifies as an instrumentality is a question of fact.270 Judge Selna's decision makes clear, though, that mere ownership by a foreign state is insufficient to render an SOE an instrumentality of a foreign state.271
[A] mere monetary investment by the government may not be sufficient to transform that entity into a governmental instrumentality. But when a monetary investment is combined with additional facts that objectively indicate the entity is being used as an instrument to carry out governmental objectives, that entity would qualify as a governmental instrumentality.272
Judge Selna went on to provide his own, non-exhaustive list of "additional facts" to be considered.273 These include: (1) the foreign state's characterization of the entity and its employees; (2) the foreign state's degree of control over the entity; (3) the purpose of the entity's activities; (4) 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); (4) the circumstances surrounding the entity's creation; and (6) the foreign state's extent of ownership (including the level of financial support by the state).274
Lindsey and Carson are landmark cases in that they represent the first significant effort to limit the government's historically broad latitude to define the terms "instrumentality" and "foreign official" by enforcement action. It appears unlikely, however, that the decisions will alter the government's trajectory with respect to FCPA enforcement actions generally, and the investment activity of SOEs in particular.275 Lindsey and Carson clearly contemplate that at least some SOEs can be considered instrumentalities and that ownership and control are significant factors in assessing whether a given SOE qualifies.276 Both cases failed to recognize, however, that it is the nature of such ownership and control that is dispositive. Judges Selna and Matz merely cited ownership and control as but two of several general categories of information that should be taken into account in conducting a fact-based analysis. In so doing, they missed an opportunity to articulate a more precise standard of ownership and control that could determine the conditions under which the application of the FCPA to SOEs is appropriate. This standard in turn could have provided valuable guidance to U.S. firms as they consider whether their potential strategic transactions with SWFs subject them to exposure under the FCPA.
IV. Conclusion: A Call for Guidance
In 2008, Steve Tyrell, then-Chief of the DOJ Criminal Division's Fraud Section, suggested at a Securities Industry and Financial Markets Association conference that securities firms should consider SWF employees to be foreign officials.277 In doing so, he foreshadowed the government's current view, as reflected in the SEC 's probe of financial services firms' ties to SWFs. While academic arguments can be made that this interprétation runs counter to Congressional intent,278 as a practical matter the judiciary's recent efforts to define the terms "instrumentality" and "foreign official" in the context of SOEs are unlikely to prompt the government to revisit its position with respect to SWFs. If anything, the DOJ and the SEC may be emboldened to press forward with their efforts to extend the reach of the FCPA to these funds.279
At one level, the notion of holding U.S. firms accountable under the FCPA for acts of bribery in connection with their strategic unions with SWFs seems reasonable. Abu Dhabi Investment Authority ("ADIA") acquired a 5% stake in Citigroup for $7.5 billion in November 2007.280 A year later, that investment was worth about $2 billion.281 If Citigroup solicited ADIA's minority investment by paying bribes to ADIA employees, this would be a prima facie violation of the FCPA and a clear instance of foreign official corruption.
Much less clear, however, is whether the employees of that same U.S. firm ought to be deemed "foreign officials" following an investment by a SWF. Because SWFs are wholly owned by a government, the question is whether the companies in which they take an ownership interest can automatically be deemed "instrumentalities," and their employees "foreign officials." In Lindsey, the DOJ argued that "instrumentality" necessarily includes "any enterprise, regardless of its legal form, over which a government . . . may, directly or indirectly, exercise a dominant influence."282 While SWFs are traditionally considered passive investors, there is nothing stopping a SWF from taking a more active ownership interest in a company.283 When a SWF owns the majority of a company's shares and voting rights, and therefore has the ability to determine the company's leadership and affect the trajectory of its business, it arguably should be subject to the FCPA.
As the KBR and Alcatel-Lucent cases suggest, however, the government seems prepared to extend FCPA liability to the companies in which SWFs have less than a majority interest.284 But where the S WF 's investment is truly passive, extending the scope of the FCPA to such activity could have significant implications. For one thing, it can have a chilling effect on U.S. corporations' willingness to solicit investments by SWFs. Companies might think twice about selling a minority interest to a SWF if, in so doing, they believe they may subject themselves and their employees to FCPA liability.285 At a minimum, uncertainty regarding whether the FCPA will apply to such companies will cloud their ability to rationally assess their exposure to potential legal liability. Further, applying the FCPA to corporations in which SWFs hold a minority interest can lead to illogical results. It would be odd, to say the least, if the DOJ and the SEC were to label all employees of Blackstone and Morgan Stanley to be "foreign officials" by reason of China Investment Corporation's minority investment in those firms.286 This is a conceivable extension of the government's approach in KBR and Alcatel.
To address the frailties of the DOJ 's current approach, clear guidance should be provided as to what constitutes sufficient control by a SWF to qualify an entity as an "instrumentality" and its employees "foreign officials." Simply put, Congress should amend, or the courts should interpret, the FCPA to articulate a standard of ownership and degree of control that a SWF must exercise over an entity to render that entity an "instrumentality" and its employees "foreign officials."287 To define this standard, Congress or the courts can look to the Foreign Sovereign Immunities Act ("FSIA"),288 the Foreign Investment and National Security Act of 2007 ("FINSA"),289 and the OECD Convention for guidance.
Under the FSIA, a SWF may claim sovereign immunity, which grants foreign sovereigns and associated entities protection from U.S. civil liability, if the SWF is able to demonstrate that it falls within the aegis of the statute by being part of a "foreign state"290 and that the SWF does not fall within any exception to the FSIA that would render a U.S. court's jurisdiction appropriate. To be so considered, SWFs must qualify as an "agency or instrumentality" of a foreign sovereign,291 a standard virtually identical to the "instrumentality" requirement of the FCPA.292 Unlike the FCPA, however, the FSIA actually defines "agency or instrumentality," requiring any such entity to be: 1) "a separate legal person," 2) "an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision thereof"293 and 3) "neither a citizen of a State of the United States . . . nor created under the laws of any third country."294 The FSIA therefore establishes a presumption in favor of "instrumentality" status for entities that are majority owned by a foreign sovereign and, conversely, a presumption against instrumentality status for entities where foreign sovereigns hold a minority share.
The FINSA, which addresses foreign investment in the United States, takes a slightly different tack. The FINSA provides a safe harbor for partial acquisitions of domestic issuers solely for investment purposes. This rule exempts foreign owners from the application of the statute when they acquire ten percent or less of the outstanding voting shares for investment purposes.295 Mirroring the approach it employed in the FSIA context, then, Congress or the courts can adopt a presumption in favor of "instrumentality" status when a foreign corporation holds a majority interest in a SWF, and against such status when it holds less than ten percent.296
While the FSIA and the FINSA can be leveraged to establish presumptions based on percentages of ownership interest, it is of limited use in defining what manner of control would alter those presumptions. 297 To define the full contours of the "instrumentality" and "foreign official" requirements, Congress or the courts should look to the OECD Convention. As discussed in Part II, the OECD Convention included within the ambit of "foreign public official" "any person exercising a public function for a foreign country, including for a ... public enterprise."299 "Public enterprise" is defined as "any enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence."299 A "dominant influence" exists when, among other things, "the government or governments hold the majority of the enterprise's subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise's administrative or managerial body or supervisory board"300
Applying this "dominant influence test", a SWF would be considered an "instrumentality" if its foreign state sponsors controlled the voting rights or otherwise had the ability to appoint a majority of the members of the S WF 's board or senior management. This would be the case irrespective of the percentage of ownership interest the foreign state maintained. The OECD Convention's emphasis on these attributes of actual control provides precisely the kind of clear guidance than can assist in determining whether a company is an instrumentality of a SWF. These are characteristics that are easily discoverable by diligent U.S. companies considering soliciting investments by SWFs.301 Curiously, Congress declined to adopt the "dominant influence" test when enacting the conforming amendments to the FCPA in 1998, thereby depriving these companies of such transparency.
On June 14, 201 1, former United States Attorney General Michael B. Mukasey testified before Congress in support of amending the FCPA to provide greater certainty to businesses that are trying to comply with the Act.302 Judge Mukasey asserted, among other things, that the FCPA should be amended to clarify the meaning of "instrumentality" and "foreign official."303 Specifically, he argued that the statute should indicate the percentage ownership by a foreign government that will qualify a company as an "instrumentality," "with majority ownership as the most plausible threshold," and to what extent "control" by a foreign government will qualify as an "instrumentality."304 In pressing his case, Judge Mukasey noted the challenges U.S. companies face in the absence of such clarity:
If the definitions of these fundamental statutory terms vary by circumstance and by case, and therefore must be determined by a jury rather than as a matter of law, it becomes impossible for companies to determine in advance what conduct may and may not present a meaningful risk of violating the FCPA .... Without a clear understanding of the parameters of "instrumentality" and "foreign official," companies have no way of knowing whether the FCPA applies to a particular transaction or business relationship, particularly in countries like China where most if not all companies are at least partially owned or controlled by the state.305
Congress or the courts should respond to Judge Mukasey 's appeal.306 Leveraging the templates provided by the FSIA and OECD Convention, much needed content should be injected into the "instrumentality" and "foreign official" requirements. By establishing majority share ownership as a standard of presumptive control, and by delineating other elements of "dominant influence" such as majority voting rights and the ability to appoint the majority of directors and senior managers, Congress or the courts will permit U.S. companies to make rational assessments of their FCPA exposure when structuring strategic unions with SWFs.
1. See, e.g., David Enrich et al., U.S. Agrees to Rescue Struggling Citigroup, WALL ST. J., Nov. 24, 2008, at Al. Citigroup received a $7.5 billion capital injection from Abu Dhabi Investment Authority, a sovereign wealth fund, in November 2007. Eric Dash & Andrew Ross Sorkin, Escalating Losses Force Citigroup to Seek More Foreign Investment, N. Y. TIMES, Jan. 1 2, 2008, at C I . For a more detailed discussion of sovereign wealth funds' investments in U.S. financial firms prior to and during the economic crisis of 2008-2009, see infra, Part 111.C.
2. See, e.g., Eric Langland, Comment, Misplaced Fears Put to Rest: Financial Crisis Reveals the True Motives of Sovereign Wealth Funds, 18 TUL. J. INT'L & COMP. L. 263, 273-74 (2009) (describing the predicament of financial firms in a liquidity crisis and the role of SWFs as "First Responders" in the 2008 crisis); Paul Rose, Sovereign Wealth Fund Investment in the Shadow of Regulation and Politics, 40 GEO. J. INT'L L. 1207 (2009). See also infra Part UI for a discussion of the evolution of SWFs and their market impact.
3. Francesco Guerrera, SEC 'Sweep ' Examines SWF Support for Banks, Financial Times (Jan. 14, 201 1), http://www.ft.eom/intl/cms/s/0/8fb6c830-lf7e-l leO-87ca-00144feab49a.html#axzzliKjVdtwU; Peter Lattman & Michael J. De La Merced, S.E.C. Looking into Deals with Sovereign Wealth Funds, N.Y. TIMES Dealbook (Jan. 13, 2011, 12:08PM), http://dealbook.nytimes.com/2011/01/13/s-e-clooking-into-deals-with-sovereign-funds/.
4. See Guerrera, supra note 3; Lattman & De La Merced, supra note 3.
5. U.S. DEP'T OF THE TREASURY, REP. TO CONO. ON INT'L ECON. & EXCH. RATE POLICIES (Dec. 2007), available at http://www.treasury.gov/resource-center/intemational/exchange-ratepolicies/Documents/Dec2007 -Report.pdf. There is not a universally agreed upon definition of a SWF. See Ping Xie & Chao Chen, The Theoretical Logic of Sovereign Wealth Funds 2, 4 (China Inv. Corp. Working Paper Series, 2009), available at http://papers.ssm.com/sol3/papers.crm?abstract_id= 14206 18 ("[A] SWF is a market-oriented and professional investment body owned and managed by a state's central government, which uses mainly foreign exchange reserves and export revenues to make overseas investment and seeks to maximize long term return.").
6. See Langland, supra note 2, at 268.
7. Lattman & De La Merced, supra note 3; Guerrera, supra note 3. See also INT'L FlN. SERVS LONDON, SOVEREIGN WEALTH FUNDS 2010 2, Mar. 2010, available at http://www.thecityU.K..com/assets/Uploads/Sovereign-W ealth-Funds-2010.pdf [hereinafter IFSL].
8. Foreign Cotnipt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (1977) (codified at 15 U.S.C. § 77m(2006)). For a discussion of the legislative history of the FCPA and an analysis of its provisions, see infra, Parts II.A and II.B.
9. For a breakdown of cases brought by the DOJ and the SEC from the 1970s through 2010, see Michael S. Bixby, The Lion Awakes: The Foreign Corrupt Practices Act - 1977 to 2010, 12 SAN DKCO INT'L. LJ. 89, App. A-C (2010) (illustrating the focus of FCPA enforcement on certain industries).
10. See GlBSON Dl)NN & CRUTCHER LLP, 2009 FCPA Year-End Update (2010), available at http://www.gibsondunn.com/Publications/Pages/2009Year-EndFCPAUpdate.aspx ("[F]or the fourth time in the last five years, the [DOJ] and [SEC] ... set a record by bringing more FCPA prosecutions than in any prior year in the FCPA's history."). For a discussion of recent trends in FCPA enforcement, see infra, Part U.C.
11. CLIFFORD CHANCE LLP, S£C Initiates Sweep of Firms Doing Business with Sovereign Wealth Funds (Jan. 2011), available at http://www.cliffordchance.ccm'content/dam/clifrordchance/PDF/SEC_Initiates_Sweep_of_Finns_Doin g_Business_with_Sovereign_Wealth_Funds_l_21_ll.pdf. In January 2011, ten U.S. financial institutions, including banks and private equity firms, received information requests from the SEC instructing them to retain documents relating to, and responding to general questions about, the firms' dealings with SWFs. According to public reports, the letters were part of an SEC "sweep," an investigation targeting an industry and not a single firm, examining whether the financial institutions' interactions with SWFs gave rise to any issues under the FCPA. Id.
12. See Michael Koehler, The Façade of FCPA Enforcement, 41 GEO. J. INT'L L. 907, 1009 (2010) (describing the factors that contribute to the "facade of FCPA enforcement" while arguing "that addressing the facade and subjecting FCPA enforcement actions to greater judicial scrutiny is in the public interest, and encourages more FCPA defendants to challenge the enforcement agencies").
13. See infra, Part III.C.
14. See id
15. See infra, Part ??.?.
16. See id.
17. See infra, ??? \l\.O.\.
18. See infra, Part III.D.2.
19. See infra, PartHI.D.I.
20. See infra Part III.D.2.
21. See infra Part I1I.D., IV.
22. See id.
23. Foreign Sovereign Immunities Act, Pub. L. No. 94-583 (codified in scattered sections of 28 U.S.C.). For a discussion of the Foreign Sovereign Immunities Act, see infra Part IV.
24. See INT'L MONETARY FUND, Report on OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Sept. 18, 2001). For a discussion of this convention, see infra Part IV.
25. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (1977) (codified as amended at 15 U.S.C. § 78dd-l(201 1)). The FCPA was the first law internationally to ban firms from one country from engaging in extraterritorial bribery or corruption. Subsequent decades saw the remainder of the international community move to institute equivalent measures. See David Dworsky, Foreign Corrupt Practices Act, 46 AM. CRIM. L. REV. 671, 672 n.3, 690-94 (noting that the FCPA was the first anti-corruption law of its kind and that many, if not most, industrialized economies followed the United States' lead in subsequent decades).
26. Justin F. Marceau, A Little Less Conversation, A Little More Action: Evaluating and Forecasting the Trend of More Frequent and Severe Prosecutions Under the Foreign Corrupt Practices Act, 12 FORDHAM J. CORP. & FIN. L. 285, 286 (2007) (summarizing Congressional and SEC findings in the mid-1970s that several hundred American corporations had engaged in foreign corruption).
27. For a definitive account of the Watergate Scandal, see generally STANLEY I. KUTER, THE WARS OF WATERGATE: THE LAST CRISIS OF RICHARD NlXON (1992). The nexus between Watergate and the corporate bribery scandal that led to the enactment of the FCPA is described in Michael Bixby, The Lion Awakens, supra note 9 at 92-93; Rollo C. Baker, Foreign Corrupt Practices Act, 47 AM. CRIM. L. REV. 647, 648 n.2 (2010).
28. Michael Bixby, The Lion Awakens, supra note 9 at 92-93; Rollo C. Baker, Foreign Corrupt Practices Act, 47 AM. CRlM. L. REV. 647, 648 n.2 (2010).
29. See H.R. REP. No. 95-640, at 4 (1977) (Conf. Rep.).
30. Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments and Practices (May 12, 1976) [hereinafter "SEC Report"]. The SEC Report identified four primary patterns of bribery directed at government officials: (1) payments "made in an effort to procure special and unjustified favors or advantages in the enactment or administration of the tax or other laws of the country in question"; (2) payments "made with the intent to assist the company in obtaining or retaining government contracts"; (3) payments "to persuade low-level governmental officials to perform functions or services which they are obliged to perform as part of their governmental responsibilities, but which they may refuse or delay unless compensated" [the precursor of what later would be defined as facilitation or "grease" payments]; and (4) political contributions. SEC Report, at 619. The SEC Report further noted that the Commission had observed payments "made to improperly influence a nongovernmental customer's use of a company's product or services," but these activities received little or no congressional scrutiny. Id.
3 1 . H.R. REP. No. 95-640, at 4 (1977) (Conf. Rep.); S. REP. No. 95-1 14, at 6 (1977) (Conf. Rep.).
33. Statement on Signing § 305 into Law, 2 PUB. PAPERS 2157 (Dec. 20, 1977) ("I share Congress's belief that bribery is ethically repugnant and competitively unnecessary.").
34. H.R. REP. NO. 95-640, at 4 (1977) (Conf. Rep.).
35. Id. at 5; S. REP. No. 95-1 14, at 3-4 (1977) (Conf. Rep.) ("The image of American democracy abroad has been tarnished.").
36. H.R. REP. No. 95-640, at 4. ("It erodes public confidence in the integrity of the free market system" by allowing companies that cannot compete in terms of price, quality, or service to nonetheless succeed through improper means, thus rewarding corruption instead of efficiency).
37. H.R. REP. NO. 95-640, at 5.
39. The Senate's concern regarding the foreign policy impact was expressed succinctly in the Senate Report No. 94-103 1 as to S. 3664 (July 2, 1976), which noted that:
Bribery of foreign officials by U.S. Corporations also creates severe foreign policy problems. The revelation of improper payments invariably tends to embarrass friendly regimes and lowers the esteem for the United States among the foreign public. It lends credence to the worst suspicions sown by extreme nationalists or Marxists that American businesses operating in their country have a corrupting influence on their political systems .... Bribery by U.S. Companies also undermines the foreign policy objectives of the United States to promote democratically accountable governments and professionalized civil services in developing countries.
The Activities of American Multinational Corporations Abroad: Hearing Before the H. Subcomm. On Int'l Econ. Policy of the Comm. on InI ? Relations, 94th Cong. 22 (1975) (statement of Michael Feldman. Deputy Legal Advisor, Dep't of State).
40. Protecting the Ability of the United States to Trade Abroad: Hearing Before the S. Subcomm. on Int'l Trade of the Comm. On Fin., 94th Cong. 9 (1975) (statement of Sen. Frank Church). In a May 16, 1975 hearing before the Senate Subcommittee on Multinational Corporations, for instance, Senator Church noted that Gulf Oil Corporation had admitted to making millions of dollars in both foreign and domestic political contributions that had an impact on U.S. relations with countries in the Persian Gulf. Hearing Before the S. Subcomm. on Multinational Corps., 94th Cong. (1975) (the "Political Contributions" Hearing). Later hearings before related Senate subcommittees examined other instances of corrupt behavior aimed at influencing foreign public officials, including significant bribes by defense and energy companies. These activities occurred throughout the developed and developing world, and included "a $4 million illegal political contribution in Korea," a payment of "$450,000 to [an] agent in Saudi Arabia for the purpose of bribing the former and present Minister of Aviation," "questionable political payments by the major oil companies" to Italian politicians (including "$46 million . . . allegedly paid to Italian political parties" by Exxon Corporation). Lockheed Bribery: Hearing Before the Comm. On Banking Hous. And Urban Affairs, 94th Cong. (1975); Protecting the Ability of the United States to Trade Abroad: Hearing Before the Subcomm. On Int'l Trade of the Comm. on Fin., 94th Cong. (1975). Most notably, the payments implicated the former Prime Minister of Japan and the monarchy of the Netherlands, leading to indictment in the former and the near abdication of Queen Juliana in the latter. See generally Declaration of Professor Michael J. Koehler in Support of Defendants' Motion to Dismiss Counts One Through Ten of the Indictment, United States v. Carson, 8:09-cr-00077, (C.D. CaI. Mar 21, 201 1).
The House of Representatives Subcommittee on International Economic Policy held similar hearings in the summer of 1 975. The Subcommittee, chaired by Representative Robert N.C. Nix, sought to examine the use of "secret funds for the payment of gratuities to foreign government and political figures" by American corporations in contravention of the laws of foreign states. The Activities of American Multinational Corporations Abroad Hearing Before the Subcomm. On Int ? Econ. Policy, 94th Cong. 1 (1975). Indeed, one member of Congress characterized these funds as "secret 'slush funds', derived from the creation of expenses for fictitious purposes and disbursed without accountability by corporate executives." Id. at 37. The House Subcommittee examined corrupt acts similar to those discussed in the Senate Hearing, including contributions to Korean political campaigns and direct payments to the Honduran leader Oswaldo Lopez Areliano. Id.
The House and Senate held several further hearings during the 94th Congress (in 1975-1976) concerning the corrupt practices of American firms involved with foreign governments, and no fewer than fifteen bills relating to foreign corruption originated in this session of Congress. (These bills and resolutions of the 94th Congress included, in chronological order: S. Res. 265, H.R. 11987, S. 3133, S. 3150, S. 3379, S. 3418, H.R. 13870, H.R. 13953, H.R. 14340, H.R. 14358, H.R. 14681, S. 3664, S. 3741, H.R. 15149, and H.R. 15481.) The remaining 1975-76 hearings, like the first hearings following the release of the SEC 's initial findings, maintained a focus on unearthing bribery and corrupt acts directed at individuals who clearly maintained some political or governmental role within third world countries. Corrupt payments related to obtaining favorable energy and defense expenditures or tax status in foreign states continued to dominate the Senate debate, and the Senate on multiple instances noted that it was attempting to bridge the jurisdictional gap between the United States and foreign states with laws that outlaw the bribery of their government officials. See, e.g.. Multinational Corporations and United States Foreign Policy Hearing Before the S. Subcomm. On Multinational Corps. , 94th Cong. (1975). (statement of Sen. Church) ("What we are talking about is a concerted effort by the petroleum industry to buy favorable tax and energy legislation in a European country in which one U.S. company alone made over $50 million in contributions to the government parties and members of the cabinet over a 9-year period. What we are talking about is an arms industry campaign to flood the Middle East with weapons, in which a U.S. aircraft company paid over $100 million in agents' fees in one country to sell an airplane which has no competitor. A large part ofthat $100 million is known to have ended up in the Swiss bank accounts of high military and civilian defense officials of the purchasing country."); Foreign and Corporate Bribes: Hearing Before the Comm. on Banking, Hous., and Urban Affairs, 94th Cong. 89 (1976) (statement of Sen. Proxmire) ("What we are concerned about is ... where a payment is made to a foreign official indirectly for the purpose of selling what that corporation has to sell to that country. It is a bribe. Now that kind of payment is not outlawed at the present time in our law and while it is outlawed in many foreign countries . . . it's very hard for those countries to prosecute because they don't have the facts. We may have the facts but we don't prosecute because it's not against the law. We are trying to bridge that situation . . . .").
Other concerns that Congressmen or witnesses raised during the hearings included the existence of kick-back provisions in government sales, how best to respond to acts of bribery, and the extent to which sunshine provisions would serve as a deterrent to corrupt acts. These issues are reflected in the concerns referenced in S. REP. No. 95-1 14 and H.R. REP. NO. 95-640.
41. Respectively, S. REP. NO. 95-1 14 (1977) and H.R. REP. NO. 95-640 (1977). The Conference Report addressed the same topics.
42. See, e.g., S. REP. NO. 95-114, at 3 (1977) (listing "[r]ecent investigations by the SEC have revealed corrupt foreign payments by over 300 U.S. companies involving hundreds of millions of dollars. These revelations have had severe adverse effects. Foreign governments friendly to the United States in Japan, Italy, and the Netherlands have come under intense pressure from their own people" as the "need for legislation"). In examining the public nature of the corruption, S. Rep. No. 95-1 14 notes that the bribe recipients encompassed in the Bill include any "foreign government official, foreign political party or candidate for foreign political office[.]" Id. Likewise, H.R. Rep. No. 95-640 listed that the purpose of the law was to "prohibit the corrupt use of the mails or other means and instrumentalities of interstate commerce by U.S. corporations ... to bribe foreign officials, foreign political parties, or candidates for foreign political office." H.R. REP. NO. 95-640, at 4 (1977). The criminalization of such acts was aimed at preventing "improper payments [which] invariably tend to embarrass friendly governments, lower the esteem for the United States among the citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations." Id. Significantly, the House Report noted that "the proposed law will not reach all corrupt payments overseas." Id. at 8 (1977) (emphasis added).
43. In an exchange during the testimony of Ian MacGregor, then the Chairman of AMAX Inc., between MacGregor and Senator Joseph Biden of Delaware, MacGregor stated that one concern of his company was the "interface with . . . increasingly Government-controlled businesses run in many cases by officials whose compensation is generally regarded as inadequate by people in other parts of the world . . . The biggest area of problem is in the interface between our business organizations and these Government and quasi-Government industrial establishments." Hearings Before the Comm. on Banking, Housing and Urban Affairs, supra note 40, at 63 (statement of Ian MacGregor). Senator Biden queried "What do we do about that? What are you suggesting?" Id. MacGregor's eventual response, being "help" in the "form of recognized international practices hopefully backed by legislation in the major countries of the world," did not address whether he believed Congress should involve itself in criminalizing transactions with quasi-governmental firms. Id. Nor did Congress take any action to incorporate MacGregor's perspective into the explicit language of bills arising in the 94th Congress or in the text of the final FCPA.
44. See, e.g., Unlawful Corporate Payments Act of 1977: Hearings Before the Subcom. on Consumer Prot. and Fin. of the H. Comm. On Interstate and Foreign Commerce , 95th Cong. 30 (1977) (statement of Dr. Gordon Adams, Director of Military Research, Council on Econ. Priorities) (noting that the primary categories Congress should consider were bribes of government officials and politicians or political parties). Notably, in his testimony Dr. Adams also cited "questionable commercial practices by U.S. firms abroad" including payments of labor unions, "questionable commercial payments] involving] gifts and payments to employees of foreign customers, to obtain business or to celebrate a successful commercial relationship," and "overbilling and illegal rebating to foreign customers"). Id. None of these practices were incorporated into the text of the FCPA.
One bill proposed during the 94th Congress, H.R. 14340, introduced by Representative Solarz, would have required issuers to report all acts of foreign bribery, regardless of government involvement, but this proposal never emerged from the Interstate and Foreign Commerce, International Relations, and Ways and Means Committees. This bill specifically required that issuers "provide a complete accounting of any offer or agreement of any agent or employee of a company or its parent, to make any contribution, pay any fee, or give anything of significant value in connection with . . . direct and indirect payments and gifts to employees of foreign, nongovernmental purchasers and sellers which are intended to influence normal commercial decisions of their employer and which are made without the employer's knowledge or consent." Prohibiting Bribes to Foreign Officials: Hearing Before the S. Comm. On Banking, Housing, and Urban Affairs, 94th Cong. 33 (1977) (statement of Rep. Stephen Solarz).
Likewise, Senator Warren Magnuson introduced a bill, S. 3741, in August 1976 which included in the ambit of "foreign government" the following: "a corporation or other legal entity established or owned by, and subject to control by, a foreign government." S. 3741 (95th Cong.). The full definition of "foreign government" included: "(1) the government of a foreign country, irrespective of recognition by the United States; (2) a department, agency, or branch of a foreign government; (3) a corporation or other legal entity established or owned by, and subject to control by, a foreign government; (4) a political subdivision of a foreign government, or a department, agency, or branch of the political subdivision, or (5) a public international organization." All of these definitional characteristics of foreign governments except the corporate/legal entity clause have nearly direct counterparts in the current text of the FCPA. S. 3741 was referred to the Senate Committee on Commerce, and was never brought to a vote on the Senate floor. An identical House counterpart, H.R. 15149, proposed on August 10, 1976 by Rep. Harley Staggers, was referred to - and stayed in - the House Committee on Interstate and Foreign Commerce.
If anything, the language of H.R. 14340 and S. 3741 and related testimony suggest that Congress was aware of commercial corruption, including corrupt acts involving state-controlled entities, and contemplated action, but ultimately declined to pursue the criminalization of such behavior. See Hearings Before the Subcomm. on Consumer Prot. and Fin., 94th. Cong. (Sept. 21-22, 1976) (statement of Roderick Hills, Chairman, SEC) (describing patterns of corrupt acts, including "foreign commercial payments made in a manner suggesting impropriety. Excessive sales commissions, over-compensated foreign business agents or consultants, or inflated invoicing to facilitate kickbacks . . . ."). The FCPA ultimately banned none of these.
45. See S. REP. No. 95-1 14 and H.R. REP. No. 95-640, supra note 41.
46. See, e.g.. Unlawful Corporate Payments Act of 1977: Hearings Before the Subcomm. on Consumer Prot. and Fin. of the H. Comm. On Interstate and Foreign Commerce, supra note 44, 95th Cong. 30 (1977) (statement of Dr. Gordon Adams, Director of Military Research, Council on Econ. Priorities) (noting that the primary categories Congress should consider were bribes of government officials and politicians or political parties, but likewise citing "questionable commercial practices by U.S. firms abroad" including payments of labor unions, "questionable commercial payment[s] involving] gifts and payments to employees of foreign customers, to obtain business or to celebrate a successful commercial relationship," and "overbilling and illegal rebating to foreign customers"). None of these practices were incorporated into the text of the FCPA, nor is there any indication that Congress seriously considered this aspect of Dr. Adams's testimony.
47. Presidential Statement on Signing S. 305 into Law, 13 PUB. PAPERS 1909 (Dec. 20, 1977).
48. Business Accounting and Foreign Trade Simplification Act: Joint Hearing Before the Comm. On Banking, Housing, and Urban Affairs, 97th Cong. 25 (1981) (statement of William Brock, U.S. Trade Representative).
49. Foreign Corrupt Practices Act Amendments of 1988, Pub. L. No. 100^18, § 5003(a), 102 Stat. 1107 (codified, with minor changes, in 15 U.S.C. § 78dd-l(b), -2(b), -3(b) (200O)) [hereinafter "1988 Amendments"]. See also Baker, supra note 28, at 648.
50. Bixby, supra note 9, at 98; Laureti Giudice, Note, Regulating Corruption: Analyzing Uncertainty in Current Foreign Corrupt Practices Act Enforcement, 91 B.U. L.REV. 347, 351 (201 1); Amy Dean Westbrook, Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act, 45 GA. L. REV. 489, 510-15 (2011); David E. Dworsky, Foreign Corrupt Practices Act, 46 AM. CRlM. L. REV. 671, 671-72 (2009); Jennifer Dawn Taylor, Ambiguities in the Foreign Corrupt Practices Act: Unnecessary Costs of Fighting Corruption?, 61 LA. L. REV. 861, 867-70(2001).
51. See H.R. REP. NO. 100-576, at 924 (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 1957. See also Giudice, supra note 50, at 351.
52. The "grease" payments exception refers to the use of payments to expedite otherwise routine governmental action. See Pub. L. No. 100-418, Title V, § 5003. See generally Judith L. Roberts, Revision of the Foreign Corrupt Practices Act by the 1988 Omnibus Trade Bill: Will it Reduce the Compliance Burdens and Anticompetitive Impact?, 1989 B.Y.U. L. REV. 491, 497-99 (1989) (explaining pre-1988 complaints relating to grease payments). See also Cortney C. Thomas, Note, The Foreign Corrupt Practices Act: A Decade of Rapid Expansion Explained, Defended, and Justified, 29 REV. LITiG. 439, 446 (2010).
53. 15 U.S.C. §78dd-3(b) (2000).
54. Pub. L. No. 100^18, Title V, § 5003.
55. Id. at (a).
56. Id. at (c).
57. See, e.g., 15 U.S.C. § 78dd-l(e).
58. The issue of regulating quasi-public or quasi-private entities arose on occasion in the context of committee hearings on amendments to the FCPA during the 1980s. Business Accounting and Foreign Trade Simplification Act: Joint hearing Before the Subcomm. on lnt ? Fin. and Monetary Policy and the Subcomm. on Sec. of the Comm. On Banking Housing, and Urban Affairs, 99th Cong. 52 (1986) (statement of Hon. Malcolm Baldrige, Secretary, Department of Commerce). ("In some countries, Senator, as you know, there aren't any really private businessmen. The businesses are all run by the government. They are government-owned businesses and you must deal with either the ministers or somebody in the ministerial department down the line . . . ."). A report submitted to the Committee, "The Price of Ambiguity: More Than Three Years under the Foreign Corrupt Practices Act," noted the ambiguity surrounding the definition of "foreign official" which, on its face, "leaves uncertain the status of employees of government-owned enterprises." Id. at 200. Ultimately, S. 430 died in the 99th Congress without impacting the FCPA.
59. Id. at 2 (statement of Sen. H. John Heinz III).
60. See Int'l Monetary Fund, OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Sept. 18, 2001. The OECD is an organization of thirtyfour nations, including the United States, founded in 1961 "to promote policies that will improve the economic and social well-being of people around the world." See OECD, About OECD, http://www.oecd.org/pages/0,3417,en_36734052_36734103JJ_l_l_l,OO.html (last visited Dec. 31, 2011). The OECD Convention guidelines reflect, in part, the success of the Executive Branch in the years 1988-1997 in petitioning other developed economies to adopt anti-corruption legislation similar to the FCPA.
61. See OECD Convention, Preamble.
62. Letter from Ann Harkins, Acting Assistant Attorney General, U.S. Dep't of Justice, to Newt Gingrich, Speaker of the House, and Albert Gore, Vice-Président and President of the Senate (May 4, 1998) ("Administrations of both parties have long urged our trading partners to criminalize bribery of foreign public officials by their nationals .... These bipartisan efforts finally succeeded when thirtythree countries signed the OECD Convention in Paris in December of last year.").
63. Id. (noting the creation of a "level playing field" among OECD member states).
64. OECD Convention at Art. 1 Aa (emphasis added). However, it bears noting that these private sector enterprises must exercise a "public function," which the OECD interprets to mean "any activity in the public interest, delegated by a foreign country, such as the performance of a task delegated by it in connection with public procurement." See OECD Convention Commentary at commentary 12. While this "public function" definition may bring within its fold SOEs or SWFs, OECD suggests that "[a]n official of a public enterprise . . . perform[s] a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges." Id. at commentary 15. This would include some, but not all, SOEs. It also may include some SWFs.
65. Id. at Art. 1 Aa. (emphasis added).
66. Id. at commentary 14.
67. Id. at commentary 14. The commentary to the OECD Convention adds that "[a]n official of a public enterprise . . . perform[s] a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges." Id. at commentary 15.
68. As discussed more fully in Part II, the U.S. government has taken a broad view of this amendment, claiming that it applies even when a foreign person is not present in the U.S. but merely causes some act to take place in the U.S. See Department of Justice, Foreign Corrupt Practices Act Anti-bribery Provisions (January 2006), available at www.usdpj.gov/criminal/fraud/fcpa/legintx.htm. See also Betty Santangelo, Gary Stein & Margret Jacobs, The Foreign Corrupt Practices Act: Recent Cases and Enforcement Trends, 8 J. INVESTMENT COMPLIANCE 3 1, 34 (2007).
69. See generally International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 1 OS366 (codified in 15 U.S.C. § 78dd-I(c)(2), -2(cX2), -3(cX2) (200O)). Prior to the enactment of these amendments the Department of Justice noted in a May 1998 letter to Congress that adoption of the OECD Convention would require these changes to the FCPA. See Letter from Ann Harkins, supra note 62.
70. Pub. L. No. 105-366 (codified in 15 U.S.C. § 78dd-l(cX2), -2(c)(2), -3(cX2)(2000))
71. The House, in the process of discussing H.R. 4353, came close to acknowledging the fact that SWFs and similar entities may All outside the scope of the FCPA. The exchange occurred between Representative Thomas Mantón and Paul Gerlach, then-Associate Director, Division of Enforcement, SEC. After Mantón and Gerlach agreed that "[t]be [FCPA] doesn't cover bribes to non-governmental people," Gerlach went on to note that "there are some interesting legal issues if what you're talking about is a foreign state operated enterprise where the foreign government perhaps has substantial ownership of the company. I can imagine certain scenarios where substantial government involvement in a commercial enterprise could provide us the basis for arguing that an official of that enterprise qualifies as a foreign government official." Mantón did not ask any further questions on this point. The International Anti-Bribery and Fair Competition Act of 1998: Hearing before the H. Subcomm. on Fin. and Hazardous Material, 105th Cong. 22-23 (1998)
72. See infra, Part II.
73. 15 U.S.C. § 78dd-l(a), 78dd-2(a) (2006).
74. While the accounting and record-keeping provisions contained within the FCPA figure prominently in SEC enforcement of the statute, a lengthy analysis of the application of these requirements is unnecessary for the purposes of this Article.
75. 15 U.S.C. § 78dd-l(aXl) (banning bribes of foreign officials "for the purposes of ... (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (in) securing any improper advantage; or ... inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality"). Similar statements apply to foreign political parties and political candidates. 15 U.S.C. § 78dd-l(aX2), 78dd-l(a)(3) (2006). These provisions affect "domestic concerns" and others within the territory of the United States, in addition to securities issuers. See 15 U.S.C. § 78dd-2(a)(l)(3); 15 U.S.C. § 78dd-3(a)(lH3) (2006).
76. 15 U.S.C. § 78dd-l(fXlXA).
77. Stacy Williams, Grey Areas of FCPA Compliance, 17 CURRENTS: INT'L TRADE LJ., Winter 2008, at 15.
78. id. See also U.S. DEP'T OF JUSTICE, LAY-PERSON'S GUIDE TO THE FCPA 1, 3, available at http://www.justice.gov/criininal/fraud/fcpa/docs/lay-persons-guide.pdf (last visited Dec. 30, 2011) [hereinafter "DOJ Lay-Person's Guide"]. ("The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment . . . ."). Additionally, the DOJ does not consider a foreign government's characterization of an individual to be dispositive. See U.S. Dep't of Justice, Opinion Procedure Release 94-01, at 1 (May 13, 1994), available at http://www.justice.gov/criminal/fiaud/fcpa/opinioa/1994/9401.pdf (classifying a person as a foreign official despite a foreign legal opinion that the person would not be considered a foreign official under the target country's laws).
79. 15 U.S.C. § 78dd-1(a), 78dd-2(a), 78dd-3(a) (2006).
80. 15 U.S.C. § 78dd-l(aX3), 78dd-2(aX3), 78dd-3(aX3) (2006). Indirect payments through third parties fall under the purview of the FCPA if the payer made the payment "while knowing" that the payee would use the payment in connection with a bribe. Id. This standard includes both "positive knowledge" of the likely offense and what can best be described as willful ignorance of the fact. H.R. CONF. REP. No. 100-576, at 920.
81. 15 U.S.C. § 78dd-l(f), 78dd-2(h), 78dd-3(f) (2006).
82. See 15 U.S.C. § 78dd-3 (2006).
83. 15 U.S.C. § 78dd-l(a), 78dd-2(a), 78dd-3(a) (2006).
84. While this is generally the case, see infra Part H for discussion of bow recent FCPA enforcement action suggests that the SEC may seek to expand its anti-bribery enforcement authority to apply to foreign nonissuers.
85. See, e.g., 15 U.S.C. § 78dd-3(a) ("It shall be unlawful for any person other than an issuer that is subject to section 78dd-l of this title or a domestic concern (as defined in section 78dd-2 of this title), or for any officer, director, employee, or agent of such person or any stockholder thereof acting on behalf of such person, while in the territory of the United States . . . ."). See generally Kari Lynn Dierson, Foreign Corrupt Practices Act, 36 AM. CRIM. L. REV. 753, 759 (1999).
86. 15U.S.C. § 78dd-l(g) (2006).
87. Id. § 78dd-l(a). The knowledge or scienter requirement includes intentionally corrupt and unlawful acts as well as acts committed with neither "conscious disregard" nor "willful blindness." See DOJ Press Release 09-928, Former Pacific Consolidated Industries Executive Pleads Guilty (Sept. 3, 2009), http://www.justice.gov/opa/pr/2009/September/09-cnn-928.html. See generally DONALD R. CRUVER, COMPLYING WITH THE FOREIGN CORRUPT PRACTICES ACT: A GUIDE FOR U.S. FIRMS DOING BUSINESS IN THE INTERNATIONAL MARKETPLACE 23 (2d ed. 1999).
88. 15 U.S.C. § 78dd-l(a)(l). As will be discussed later in this Article, the question of what constitutes a state "instrumentality" is central in examining the extent to which the FCPA may apply to SWFs and other state-associated or state-owned enterprises.
89. Id. § 78dd-l(a).
91. 15 U.S.C. § 78dd-l(b), 78dd-2(b), 78dd-3(b) (2006). These services may include customs clearances, import permits, licenses, and other similar non-discretionary functions common to international trade.
92. Id. § 78dd-l(cXl), 78dd-2(c)(l), 78dd-3(cXl) (2006) (requiring that the gift is "lawful under the written laws and regulations of the foreign official's, political party's, party official's, or candidate's country").
93. Id. § 78dd-l(cX2), 78dd-2(c)(2), 78dd-3(cX2) (2006).
94. Executive Legal Summary No. 5: The Foreign Corrupt Practices Act, in 2 FOREIGN CORRUPT PRACTICES ACT 1-67 (2007).
95. For an overview of how SEC antibribery enforcement actions have seen renewed focus in recent years, see Stuart H. Deming, The Changing Face of White-Collar Crime: The Potent and Broadranging Implications of the Accounting and Record-keeping Provisions of the Foreign Corrupt Practices Act, 96 J. CRIM. L. & CRIMINOLOGY 465, 497-500 (2006) [hereinafter Deming, Recordkeeping].
96. See, e.g., SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1374-77 (D.C. Cir. 1980) ("Effective enforcement of the securities laws requires that the SEC and Justice be able to investigate possible violations simultaneously. . . . [W]e should not block parallel investigations by these agencies in the absence of 'special circumstances' in which the nature of the proceedings demonstrably prejudices substantial rights of the investigated party or of the government.").
97. 1 5 U.S.C. §78u (2006).
98. Deming, Recordkeeping, supra note 95, at 498.
99. Specifically, these record-keeping requirements were integrated into the Securities Exchange Act of 1934 at 15 U.S.C. § 78a-78111 (2006).
100. 15 U.S.C. § 78m(b)(2)(A) (2006).
101. 15 U.S.C. § 78m(bX2)(B) (2006). The term "reasonable" as seen in both (A) and (B) of §78m(bX2) refers to the "level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs." 15 U.S.C. § 78m(bX7) (2006).
102. 15 U.S.C. §78m(b)(2).
103. Id. § 78m(bX2Xb); CRUVER, supra note 87, at 18.
104. Dierson, supra note 85, at 756.
105. This is, of course, to the extent that the FCPA is subject to litigation: as discussed infra, the vast majority of firms targeted for FCPA investigations opt to cooperate with the SEC and DOJ under a deferred prosecution or non-prosecution agreement.
106. 15 U.S.C. § 78m(b)(5) (2006). As explained supra in note 87, the emphasis on the knowledge or scienter requirement includes in both intentionally corrupt and unlawful acts as well as acts committed with either "conscious disregard" or "willful blindness." See CRUVER, supra note 87, at 23.
107. 15 U.S.C. § 78fi(cX2XA) (issuers); 15 U.S.C. § 78dd-2(g) (domestic concerns); 15 U.S.C. § 78dd-3(eXl)(A) (non-US persons); 18 U.S.C. § 3571(d) (Alternative Fines Act).
108. 15 U.S.C. § 78ffi(cX2XA) (issuers); 15 U.S.C. § 78dd-2(g) (domestic concerns). In some instances, under the Alternative Fines Act, individuals can be fined up to $250,000. 1 8 U.S.C. § 357 l(b). The 1998 amendments extended criminal liability to foreign employees or agents of U.S. companies, who previously had only been subject to civil liability. 15 U.S.C. § 78dd-3(e)(2XA) (non-U.S. persons).
109. 15 U.S.C. § 78ffl(a).
110. 18 U.S.C. § 98 l(aXl XC), 1956(c)(7XB)(iv) (specifying "bribery of a public official" as an offense under which violators may risk civil forfeiture).
111. 15 U.S.C. § 78dd-2(gX3), 78ff(cX3) (2006).
112. 15 U.S.C. § 78ff(cXl)(B), (c)(2XB).
113. 15 U.S.C. § 78dd-2(g)(lXB), (g)(2XB) (domestic concerns); 15 U.S.C. § 78dd-3(eXlXB), (e)(2XB) (non-U.S. persons).
114. 15 U.S.C. §78u-2(b).
116. The SEC can seek disgorgement in administrative proceedings under 15 U.S.C. § 78u-2(e), or as an equitable remedy in civil enforcement actions in federal court. Santangelo, Stein and Jacobs, supra note 68, at 37 n. 49.
117. 15 U.S.C. § 78dd-2(d) (domestic concerns); 15 U.S.C. § 78dd-3(d) (non-U.S. persons).
118. John Gibeaut, Battling Bribery Abroad, A.B.A. JOURNAL, Mar. 1 8, 2007, at 48. Prior to the 1977 enactment of the FCPA, the DOJ brought fifteen cases that may have feilen under the FCPA antibribery provisions. Bixby, supra note 9, at 102.
119. Many of these scandals are well known to the general public, including the investigations into accounting improprieties at Enron, WorldCom, Tyco, ImClone Systems, and Qwest Communications.
120. Priya Cherian Huskins, FCPA Prosecutions: Liability Trend to Watch, 60 STAN. L. REV. 1447, 1449 (2008).
121. Phillip Urofsky & Danforth Newcomb, Recent Trends and Patterns in FCPA Enforcement 2, FCPA DIGEST, SHEARMAN & STERLING LLP Jan. 20, 2011, at 1-2, available at, http://www.shearman.com/files/upload/FCP ATrends-and-Patterns-Jan2-ll.pdf. It is important to note that these figures are averages over this time period. The actual number of investigations has risen more dramatically since 2005. Id.
122. Henny Sender, Bribery: Lines Less Blurred, FINANCIAL TIMES, July 18, 201 1, available at http://www.ft.eom/intl/cms/s/0/382eb374-bOa7-lleO-a5a7-00144feab49.ahtml.
123. "Eyes on Goldman-Libya Dealings," WALL ST. J., (June 9, 201 1) at Cl. See also Urofsky & Newcomb, supra note 121, at 2.
124. Urofsky & Newcomb, supra note 121, at 2.
125. See SIDLEY AUSTIN LLP, ANTI-CORRUPTION QUARTERLY 2 (Apr. 2011) [hereinafter "Sidley Austin Anti-Corruption Quarterly"] available at http://www.sidley.coni/sidleyupdates/Detail.aspx?news=4776. This reflects a division of $1.8851 billion in penalties paid over 75 cases brought by the DOJ and SEC.
126. Richard L. Cassin, J&J Joins the Top Ten, FCPA Blog (Apr. 8, 2011, 4:43 PM) http://fqiablog.squarespace.coni/blog/201 1/4/8/jj-joins-new-top-ten.html (this list incorporates criminal and civil as well as disgorgements). See also Amy Dean Westbrook, Enthusiastic Enforcement, Informal Legislation, supra note 50, at 492-93 (listing the major FCPA settlements since 2008).
127. See Sidley Austin Anti-Corruption Quarterly, supra note 12S, at 5. Cases where the SEC has sought only disgorgement of unlawfully-acquired profits include Halliburton/KBR (2009), Siemens (2008), Willbros (2008), El Paso Corp. (2007), and Statati (2006). ItL The SEC is entitled to seek disgorgement of an amount that is reasonably approximated to a violator's unlawfully-acquired revenues. See SEC v. Calvo, 378 F.3d 121 1,1217 (1 lth Cir. 2004) (citing SEC v. Warde, 151 F.3d 42, 50 (2d Cir.1998); SEC v. First Pac. Bancorp, 142 F.3d 1 186, 1 192 (9th Cir.1998); SEC v. First City Fin. Corp., 890 F.2d 1215, 1231-32 (D.C. Cir.1989)). The SEC efforts to reasonably approximate the amount of unlawfully-acquired revenues stemming from FCPA violations do not appear to err on the side of caution.
128. See Lanny A. Breuer, Assistant Attorney General, Address at the 24th National Conference on the Foreign Corrupt Practices Act, U.S.(Nov. 16, 2010), available at http://www.justice.gov/criminal/pr/speeches/2010/crm-speech-101 1 16.html [hereinafter "Breuer Conference Speech"]; Robert Khuzami, Remarks Before the New York City Bar My First 100 Days as Director of Enforcement(Aug. 5, 2009), available at http://www.sec.gov/news/speech/2009/spch080509rk.htm [hereinafter "Khuzami Speech"].
129. Breuer Conference Speech, supra note 128. "[I]n the last 19 months, we've substantially increased the number of prosecutors in the FCPA Unit. We now have over a dozen attorneys dedicated solely to prosecuting FCPA cases, and we have attracted to the FCPA Unit prosecutors of extremely high caliber and profile."
130. Id. "Although our FCPA Unit stands at the center of our enforcement program, it now also has help from the prosecutors in our Asset Forfeiture and Money Laundering Section (known as AFMLS). As I have described to other audiences, AFMLS recently initiated a new KJeptocracy Asset Recovery Initiative, which will target and recover the proceeds of foreign official corruption that have been laundered into or through the United States."
131. Khuzami Speech, supra note 128 ("The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.").
132. See Bixby, supra note 9, at 104; Sue Reisinger, On Bended Knee: Companies are Disclosing Overseas Bribes in Record Numbers. But is Confession Always Necessary?, CORP. COUNSEL (July 1, 2007), available at http://www.law.corn/jsp/cc/PubArticleCC.jsp?id==900005484219.
133. GlBSON DUNN & CRUTCHER LLP, 2010 Year-End FCPA Update, (Jan. 3, 2010), available at http://www.gibscmdunn.com/publications/pages/20 1 OYear-EndFCPAUpdate.aspx.
135. Id.; Urofsky & Newcomb, supra note 121, at 8.
136. In what is referred to as the "SHOT Show sweep," U.S. and U.K. law enforcement officials executed nearly two dozen search warrants and made twenty-two arrests when the suspects - who were employees of U.S. defense and security contractors - purportedly agreed to bribe undercover agents posing as Gabonese Defense Ministry officials in order to secure a supply contract. Historically Massive Sting Operation, http://fcpaprofessor.blogspot.com/2010/01/historically-massive-stingoperation-html (Jan. 19, 2010, 7:58 PM). The "SHOT Show sweep" was not the first DOJ undercover sting operation in a FCPA investigation. FCPA Undercover, http://fcpaprofessor.blogspot.com/2010/01/fcpa-undercover.htrnl (Jan. 25, 2010, 10:25 AM). However, it was by fer "the largest and most dramatic use of pro-active undercover investigative techniques" in the FCPA context. Id. Three of the SHOT Show defendants - Richard Bistrong, Haim Geri, and Daniel Alvirez - have pleaded guilty, while trials of the remaining defendants are pending, have ended in mistrial and, in two cases, acquittal. See Jury Mulls Fate of Four Shot Show Defendants, http://www.fcpablog.eom/blog/2011/6/28/jury-mulls-fete-of-four-shot-show-defendants.html FCPA LAW BLOG (June 28, 2011, 7:05 AM) (discussing Bistrong); Thomas O. Gorman, Two More FCPA Guilty Pleas, FCPA LAW BLOG (MAY 2, 2011, 6:45 PM), htrp://www.lexisnexis.cc^community/corpsec/blogs/fcpa-law-blog/archive/2011/05/02/twc-more-fcpaguilty-pleas.aspx; Hilary Russ, Shot-Show Defendant Cops to FCPA Violations, LAW360, Mar. 2, 201 1, http://www.law360.com/articles/229204/shot-show-defendant-cops-to-fcpa-violations (discussing Alvirez); Feds Should Forget the Shot Show Defendants, FCPA BLOG, (July 10, 2011, 4:17 PM) http://www.fcpablog.com/blog/201 1/7/10/feds-should-forget-the-shot-show-defendants.html (explaining the mistrial of four defendants and the division of defendants into separate groups for trial by Judge Leon of the U.S. District Court for the District of Columbia); C. M. Matthews and Joseph Palazzolo, Jury Acquits Two Defendants In FCPA Sting Case, CORRUPTION CURRENTS (Jan. 30, 2012, 4:09 PM) http://blogs.wsj .com/corruption -currents/20 12/01 /30/jury-acquits-two-defendants-in-fcpa-sting-case/ (discussing acquittal of two defendants); Second Mistrial in African Sting, FCPA BlOG, (Jan. 31, 2012, 4:49 PM) http://www.fcpablog.eom/blog/2012/l/3 1/second-mistnal-in-africa-sting-prosecution.html (explaining that of a group of six defendants who were tried together, one was granted an acquittal by directed verdict, two were acquitted by the jury, and the court declared a mistrial for the remaining three).
137. See supra. Part I; see also 2010 Year-End FCPA Update, supra note 133 ("Speaking to this trend recently, Cheryl J. Scarboro, Chief of the SECs newly-formed FCPA Unit, said that the SEC will continue to focus on industry-wide sweeps, and no industry is immune from investigation.'").
138. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 1 1 1-203, § 922(a), 124 Stat. 1376, 1841 (2010) (to be codified at 15 U.S.C. § 78u-6). Section 922 of Dodd-Frank requires the SEC to pay awards to whistleblowers that voluntarily provide information to the SEC that leads to the successful enforcement of a violation of the federal securities laws resulting in monetary sanctions exceeding $1,000,000. SEC Adopts Final Dodd-Frank Whistleblower Rules: What You Need to Know, BAKER HOSTETLER LLP (June 2, 2011), http://www.bakerlaw.com/sec-adopts-final-dodd-fiankwhistleblower-rules-what-you-need-to-kno\v-06-02-2011/. Section 922 also prohibits retaliation by employers against individuals who provide the SEC with information about possible securities law violations. Id.
139. Pub. L. 111-203, § 922(a), 124 Stat. 1376, 1841 (2010) (to be codified at 15 U.S.C. § 78u-6). The SEC has been slow in establishing this program. See Jessica Holzer, Stil! Waiting for Those DoddFrank Whistleblower Rules? Get Used to It, WALL ST. J. L. BLOG (Apr. 27, 2011, 6:04 PM), http:^logs.wsj.com/law/2011/04/27/stillwaiting-for-those-dodd-fiank-whistleblower-rules (reporting how the SEC has missed the original deadline).
140. SEC Press Release No. 2011-116, SEC Adopts Final Rules to Establish Whistleblower Program (May 25, 201 1), http://www.sec.gov/news/press/201 1/201 1-1 16.htm. The new provisions of the Dodd-Frank Act direct the SEC to pay awards, under certain conditions, to whistleblowers who voluntarily provide the SEC with significant information leading to successful SEC enforcement actions. Id. Specifically, to be considered for an award, a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million. Id, See also SEC Adopts Final Dodd-Frank Whistleblower Rules: What You Need to Know, Baker Hosteller LLP, supra note 138; SEC Adopts Final Rules Implementing Dodd-Frank Whistleblower Provisions, FlN. REFORM WATCH, http://www.financiatefonnwatch.<x>m/2011/06/articles/reform recommendations/sec-adopts-final-rules-implementing-doddfrank-whistleblower-provisions.
141. See Joe Palazzolo, After Dodd-Frank. SEC Getting At Least One Tip a Day, WALL ST. J. CORRUPTION CURRENTS BLOG (Sept. 30, 2010, 11:21 AM), http://bogs.wsj.com/corruption-currents/2010/09/30/after-dodd-frank-sec-getting-at-least-one-fcpa-tipa-day/.
142. Press Release, SEC 2010-6, SEC Announces Initiative to Encourage Individuals and Companies to Cooperate and Assist in Investigations (Jan 13, 2010), http://sec.gov./news/press/2010/2010-6.htm. A more detailed discussion of the use of DPAs and nonprosecution agreements ("NPAs") to resolve FCPA cases is set forth in Part II (c)(2).
143. See SEC v. Tenaris, Deferred Prosecution Agreement (201 1) [hereinafter "SEC DPA"]; see also FCPA Settlement with Tenaris Includes SEC 's First- Ever Deferred Prosecution Agreement, Debevoise & Plimption LLP FCPA Update, Vol. 2, No. 10 (May 201 1). Tenaris also settled a parallel criminal investigation by the DOJ by entering into an NPA. United States v. Tenaris, Non-Prosecution Agreement (201 1) [hereinafter "DOJ NPA"].
As part the settlements, Tenaris admitted that in 2006 and 2007, when bidding on a series of supply contracts with an oil and gas production company that was wholly owned by the Government of Uzbekistan, OJSC O'ztashqineftgaz ("OAO"), it had offered and made payments to officials of OAO and failed to record those payments properly in its books and records. SEC DPA at 1,6,9,1 5; DOJ NPA at A1-A4. The offers and payments were made by an agent retained by Tenaris. Id. The agent obtained confidential information regarding competitors' bids, which Tenaris then used to revise its own bids. Id. Tenaris admitted that it had agreed to pay the agent 3 to 3.5% of the value of the contracts and was "aware or substantially certain" that the agent would pay at least a portion ofthat amount to employees of OAO and that certain of the payments would be routed through a New York bank account. Tenaris subsequently won the contracts and received nearly $5 million in profits from them. SEC DPA at 6(i), (k), (v).
Under the terms of the DPA with the SEC, Tenaris agreed to pay $5.4 million in disgorgement and prejudgment interest, but no penalty. SEC DPA at U 8(c). Tenaris also agreed not to deny in any public statement or to contest in any future SEC enforcement proceeding a detailed statement of facts outlining the bribe scheme. In addition, it agreed to enhance its compliance policies and procedures and internal controls, implement additional due diligence requirements, provide training to its employees regarding FCPA and other anti-corruption compliance, and fully cooperate with the SEC's investigation. SEC DPA at 3,4,8,9. In exchange, the SEC agreed to defer an enforcement action against the company for violations of the accounting provisions of the FCPA. SEC DPA at 1-2,13-16.
The SEC emphasized that it used the deferred prosecution approach "to facilitate and reward cooperation" by Tenaris. Press Release, SEC, 2011-112, Tenaris to Pay $5.4 Million in SEC's FirstEver Deferred Prosecution Agreement (May 17, 2011), http://sec.gov/news/press/2011/2011-112.htm. Robert Khuzami, Director of the SEC's Enforcement Division, stated that although Tenaris' conduct was unlawful, "the company's response demonstrated high levels of corporate accountability and cooperation .... The company's immediate self-reporting, thorough internal investigation, full cooperation with the SEC staff, enhanced anti-corruption procedures, and enhanced training made it an appropriate candidate for the Enforcement Division's first Deferred Prosecution Agreement." Id. See also FCPA Settlement with Tenaris Includes SEC's First-Ever Deferred Prosecution Agreement, Debevoise & Plimpton LLP FCPA Update (May 2011), available at http://www.debevoise.com/files/Publication/064c3 1 c9-70b6-4a0a-b4el - 370afcc230a3/Presentation/PubIicationAttachment/f60f5be2-b084-4a53-8d00636653e479e3/FCPAUpdateMay2011.pdf.
144. See Richard L. Cassin, 2009 FCPA Enforcement Index, THE FCPA BLOG (Dec. 31, 2009, 3:15 AM), http://www.fcpablog.com/blog/2009/12/31/2009-fcpa-enforcement-index.html (listing individuals indicted, arrested, convicted, sentenced, or civilly charged).
145. See Richard L. Cassin, 2010 FCPA Enforcement Index, THE FCPA BLOG (Jan. 3, 201 1, 7:02 AM), http://www.fcpablog.eom/blog/2011/l/3/2010-fcpa-enforcement-index.html (listing these individuals). There is some overlap with the 2009 list because some individuals were charged in one year and sentenced in the next; see generally, supra note 136.
146. See, e.g., United States v. Carson, No. 8:09-cr-00077-JVS, Dkt. No. 373 (C.D. CaI. May 18, 2011) (exhibiting this practice by charging the agents of Lindsey Manufacturing, Inc. and Control Components, Inc. with FCPA violations).
147. In a May 2010 speech, Assistant Attorney General Breuer reaffirmed the DOJ's strategy of focusing on individuals: "Charging individuals is part of a deliberate enforcement strategy to deter and prevent corrupt corporate conduct before it happens. And rest assured that we will seek equally tough sentences, including significant time if appropriate, to reinforce this message of deterrence." Lanny A. Breuer, Assistant Att'y Gen., Criminal Div., DOi, Prepared Remarks to Compliance Week 2010- 5th Annual Conference for Corporate Financial, Legal, Risk, Audit & Compliance Officers (May 26, 2010), available at http://www.justice.gov/criminal/pr/speeches-testimony/20 1 0/05-26- 1 Oaag-complianceweek-speech.pdf [hereinafter "Breuer Compliance Speech"].
148. Notably, five of the six largest settlements under the FCPA have been with companies headquartered outside the U.S. See Sender, supra note 122.
149. Law enforcement agencies in France, Germany, Japan, and the United Kingdom are joining the U.S. in working closely with other nations to investigate, prosecute and negotiate global resolutions of parallel bribery and corruption charges, as was evident in several cases brought in 2010. See, e.g., Press Release, EKDJ, BAE Systems PLC Pleads Guilty and Ordered to Pay $400 Million Criminal Fine, (March 1, 2010), available al http://www.justice.gov/opa/pr/2010/March/10-crm-209.html; SEC Litigation Release No. 21454, SEC Files Settled Foreign Corrupt Practices Act Charges Against Innospec, Inc. for Engaging in Bribery in Iraq and Indonesia with Total Disgorgement and Criminal Fines of $40.2 Million, (March 18, 2010), available at http://www.sec.gov/litigation/litreleases/20 1 0/lr2 1 454.htm.
150. Assistant Attorney General Lanny A. Breuer Speaks at the United Nations for International Anti-Corruption Day, New York, December 9, 2010, available al http://www.justice.gov/criminal/pr/speeches/20 1 0/crm-speech-101209.html.
In addition, a new international standard is emerging in which corporations worldwide are held to increasingly exacting standards with respect to anti-bribery compliance. Timothy J. Coleman & Paul Lomas, Bribery and Corruption Compliance: The Playing Field Levels, 245 N.Y.L.J. 1 (Apr. 20, 201 1) ("An international standard for anti-bribery compliance . . . has emerged over the past year as national governments and non-governmental organizations throughout the world have adopted strict new laws and detailed guidelines for compliance programs."). In the past year, the OECD and the U.S. and U.K. governments have issued elaborate new standards for anti-bribery compliance programs. Id. In February 2010, for example, the OECD adopted its Good Practice on Internal Controls, Ethics and Compliance (the "OECD Guidance"). Good Practice on Internal Controls, Ethics and Compliance, available at http://www.oecd.Org/dataoecd/5/51/44884389.pdf. The guidance largely tracks the U.S. Sentencing Guidelines on the sentencing of organizations, originally adopted in 1991, which outline a standard for all corporate compliance programs. Id. See also Coleman & Lomas, supre at 1 . In November 2010, the The DOJ announced a series of DPAs that resolved FCPA investigations against several companies. Id. (DPAs and other court documents available at http://www.justice.gov/opa/opa_documents.htm.) Attachment "C" to each of the DPAs contained detailed compliance program requirements tracking the new international standard. Id. Most recently, in March 201 1 the U.K. Ministry of Justice published guidance on "adequate procedures" that companies must adopt to avoid strict liability for violations of the U.K. Bribery Act. Bribery Act 2010: Guidance About Procedures Which Relevant Commercial Organisations Can Put Into Place to Prevent Persons Associated with Them From Bribing, U.K. MINISTRY OF JUSTICE, available at http://www.jiJstice.gov.U.K./guidance/making-and-reviewing-thelaw/bribery.htm. This guidance includes elements seen in both the OECD and U.S. guidelines. Taken together, the OECD, U.S. and U.K. guidance "establish an international standard for bribery and corruption compliance." Coleman & Lomas, supra at 1.
151. Breuer speech, supra note 150. The DOJ has also trained nearly 30,000 foreign law enforcement personnel through its International Criminal Investigative Training Assistance Program. Id.
152. Richard Smith, Michael Pacella & Josh Foster, The Tipping Point in Global FCPA Enforcement, LAW 360, New York (April 13, 201 1).
153. Bribery Act, 2010, c. 23, §1 (U.K.) (the "U.K. Bribery Act"). Although some of the U.K. Bribery Act's provisions are similar to the FCPA, many provisions are, in feet, more stringent. For example, unlike the FCPA, the U.K. Bribery Act does not contain an exemption for so-called "facilitating payments." F. Joseph Warin, Charles Falconer, & Michael S. Diamant, The British Are Coming!: Britain Changes Its Law on Foreign Bribery and Joins the International Fight Against Corruption, 46 TEX. INT'L LJ. 1, 20 (2010) ("The Bribery Act contains no exception or defense for facilitating payments."). Another significant difference is that the Bribery Act criminalizes the receipt of a bribe, in addition to the payment or offer to pay. Id at 23-24 (describing scenarios under which a recipient would violate the Bribery Act). Other differences may be less significant. While the U.K. Bribery Act does not include a books and records provision, for instance, U.K. companies remain subject to requirements of accurate accounting provisions contained in other legislation, such as the Companies Act of 2006. Companies Act 2006, c. 46, § 86-27, 464 (U.K.).
154. Smith, Pacella, & Foster, supra note 152; Developments in Indian Anti-Corruption Legislation, FCPA Update, Debevoise & Plimpton LLP, Vol. 2, No. 9, at 7-10 (Apr. 2011); AntiCorruption Agency to be Created: ??a, THE CHINA POST (July 21, 2010), http://www.chinapost.com.tw/taiwan/national/national-news/20 1 0/07/2 1 /265394/Anti-conuptionagency.htm. It is expected that the Taiwanese agency will launch in late summer 201 1. Elaine Hou, Taiwan's Legislature OKs Anti-Corruption Agency, TAIWAN TODAY (Apr. 6, 2011), http://www.taiwantoday.tw/cLasp?xItem=158745&ctNode=413 (noting the April 1, 2011 passage of the Anti-Corruption Administration Act and its expected implementation).
155. The eighth amendment to the Criminal Law of the People's Republic of China ("PRC"), amending article 164, criminalizes conduct of offering money or property to foreign public officials or officials associated with international public bodies with an intent to obtain "unjust commercial benefits." Peter Yuen, China 's Tightening Law on Bribery of Officials, Freshfields Bruckhaus Deringer (Mar. 2010), available at http://www.freshfields.com/publications/pdfs/2011/marll/30020.pdf. It is unclear whether the law applies to PRC entities (it clearly applies to citizens under article 7 of the Criminal Law), but what may prove particularly worrisome for foreign firms is mat the amended article 164 should apply extraterritorially. Under article 6 of the Criminal Law, any act that has consequences within Chinese territory is deemed to be committed within the PRC; therefore, a bribe exchanging hands between an entity and any foreign official, regardless of location, will render that entity liable under Chinese law if the bribe has an effect within the PRC.
156. In 2010, the Nigerian government's Economic and Financial Crimes Commission ("EFCC") settled criminal charges against two companies regarding bribes paid in connection with the Bonny Island Liquified Natural Gas project. See Smith, Pacella, & Foster, supra note 152. Between 1995 and 2004, a joint venture comprised of four companies paid $182 million in "consulting fees" to two agents. DOJ Press Release, Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine (Feb. 11, 2009), available at http://www.justice.gov/opa/pr/2009/February/09-crm-112.html. These agents subsequently bribed Nigerian officials in order to obtain four contracts, worth over $6 billion, to construct liquefied natural gas facilities on Bonny Island in offshore Nigeria. The DOJ and SEC opened investigations into the Bonny Island bribery scheme in 2008, which resulted in large settlements against three of the four joint venture partners (the investigation into the fourth partner is pending). For example, in February 2009 one US-based partner pled guilty to one criminal conspiracy count and four substantive FCPA counts and agreed to pay a fine of $402 million. The partner also settled civil FCPA charges with the SEC and agreed to disgorge $1 77 million. In 2010, two additional joint venture partners, one based in France and the other in Italy, agreed to pay $338 million and $3 million, respectively, in joint DOJ/SEC enforcement actions. The fourth joint venture, headquartered in Japan, reportedly is in settlement discussions with the DOJ and SEC. Smith, Pacella, & Foster, supra note 152.
Following the DOJ's and SEC's lead, the Nigerian EFCC arrested at least 10 employees of the U.S. joint venture company's former parent company in November 2010. Elisha Bala-Gbobo, Nigeria Files Charges Against Dick Cheney, Halliburton, Over Bribery Case, BLOOMBERG NEWS, Dec. 7, 2010, available at http://www.bloomberg.com/news/2010-12-07/nigeria-files-charges-against-dick-cheneyhalliburton-over-bribery-case.html. On December 20, 2010, the U.S. joint venture company announced that it had entered into a settlement with the Nigerian government, agreeing to pay $32.5 million in penalties. Press Release, Halliburton, Halliburton Confirms Agreement to Settle with Federal Government of Nigeria (Dec. 21, 2010), available at http://halliburton.com/public/news/pubsdata/press_release/2010/corpnws_12212010.htnil. The following day, the U.S. parent company lso reported that it had entered into a $35 million settlement.
While these enforcement actions by the Nigerian government essentially "piggybacked" on an investigation conducted by the DOJ and SEC, it marks a significant shift in terms ofthat government's willingness to take action when confronted with evidence of illicit payments to its officials. Smith, Pacella, & Foster, supra note 152.
157. See supra note 128. ("As our track record over the last year makes clear, we are in a new era of FCPA enforcement; and we are here to stay.").
159. Breuer Speech, supra note 128.
160. See Mike Koehler, The Foreign Corrupt Practices Act in the Ultimate Year of its Decade of Resurgence, 43 IND. L. REV. 389, 396-98 (2010).
161. Id. at 397-98 (summarizing the industries and jurisdictions of FCPA actions in 2009). See also Westbrook, supra note 50, at 523-24 ("The oil and gas, technology, pharmaceuticals, and medical supplies industries have been 'heavily hit by actions in the last few years.'").
162. See supra notes 129-137 and accompanying text.
163. The lack of clarity surrounding the definition of "instrumentality" has been a source of consternation for outside observers, including the OECD. See OECD, REPORT ON APPLICATION OF THE CONVENTION ON COMBATING BRIBERY OF FOREIGN PUBLIC OFFICIALS IN INTERNATIONAL BUSINESS TRANSACTIONS AND THE 1997 RECOMMENDATION ON COMBATTING BRIBERY IN INTERNATIONAL BUSINESS TRANSACTIONS 32 (2002) available at http://www.oecd.org/dataoecd/52/19/1962084.pdf. Neither the statute nor its history define the term 'instrumentality,' thus leaving it to U.S. companies to determine whether an enterprise is an instrumentality or not. This can be difficult in some cases. For instance, are 'instrumentalities' only enterprises that are wholly or majority-owned by the foreign government? Does the term 'instrumentality' cover enterprises that are controlled by the government, or entities in the process of privatisation?
164. See Koehler, supra note 160, at 410-12 (summarizing FCPA actions and what types of entities were considered foreign officials). See infra, Part III.O., for a discussion of recent FCPA cases in which the government assumes that SOEs can meet the definition of "instrumentality," and thus their employees the definition of "foreign official," under the FCPA.
165. See Joel M. Cohen, Michael P. Holland & Adam P. Wolf, Under the FCPA, Who Is a Foreign Official Anyway ?, 63 BUS. LAW. 1243, 1245-46 (2008) ("The vast majority of FCPA cases end with swift settlement agreement . . . ."); Laureo Giudice, Note, Regulating Corruption: Analyzing Uncertainty in Current Foreign Corrupt Practices Act Enforcement, 91 B.U. L. REV. 347, 368 (201 1) (noting that such agreements are now common in FCPA enforcement against corporations); Koehler, supra note 12, at 933-39 (discussing the use of DPAs and NPAs in FCPA enforcement); Cortney C. Thomas, Note, The Foreign Corrupt Practices Act: A Decade of Rapid Expansion Explained, Defended, and Justified, 29 REV. LlTlG. 439, 457 (2010) ("Since DPAs and NPAs avoid the courtroom, very little case law has developed with respect to the terms or provisions of the FCPA."); Richard L. Cassin, A Gesture of Justice, FCPA BLOG (Feb. 9, 2010 5:27 PM), http://fcpablog.squarespace.eom/blog/2010/2/10/a-gesture-of-justice.html; Westbrook, supra note 50, at 557 (listing some instances of DPAs being used in FCPA enforcement). Past efforts to challenge the government's interpretation have been rebuffed with relative ease. See United States v. Esquenazi, 09CR-21010, Order Denying Motion to Dismiss (S.D. FIa. Nov. 19, 2010) (denying motion challenging DOJ interpretation dismissed in relation to bribery of Haitian officials); United States v. Nguyen., 08CR-522, Order Denying Motion to dismiss (E.D. Pa. Nov. 23, 2009) (denying motion challenging FCPA enforcement in the context of bribery in connection with sales of airport equipment to Vietnam). Indeed, only once in the twenty years prior to 201 1 did a corporation ever take the government to trial on its FCPA charges. Brace Carton, The Summer of the Foreign Corrupt Practices Act, COMPLIANCE WEEK. (June, 201 1) at 28. This corporate defendant, Harris Corporation, was acquitted in 1991 in what was described as a "'stunning defeat for the Justice Department.'" Id.
As discussed more fully in Part IV, infra, defendants in several recent cases have challenged DOJ and SEC interpretations of the statutory term "foreign official."
166. Candace Zierdt & Ellen S. Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing, 96 KY. LJ. 1, 2 (2007). Arthur Andersen, LLP was convicted in 2002 of a single criminal count of witness tampering in relation to the firm's handling of documents belonging to a major client, Enron. Linda Greenhouse, Justices Dubious of U.S. Case on Andersen, N.Y. TIMES (Apr. 28, 2005), available at http://www.nytimes.com/2005/04/28/business/28bizcourt.htmI. Ultimately, the Supreme Court in a unanimous opinion overturned the conviction on the basis of faulty jury instructions, an outcome which proved to be "little more man a Pyrrhic victory for Andersen, which lost its clients after being indicted on obstruction of justice charges and has no chance of returning as a viable enterprise. The accounting firm Q shrunk from 28,000 employees in the United States to a skeleton crew of 200, who [attended] to the final details of closing down the partnership." Linda Greenhouse, Justices Unanimously Overturn Conviction of Arthur Andersen, N.Y. TIMES, May 3 1 , 2005, at C 1 . The fact that the firm ultimately won the legal battle related to the indictment, but lost its ability to function as a going concern, illustrates the disastrous effects of a criminal indictment of a corporation.
167. See Zierdt & Podgor, supra note 1676, at 14 (describing how the government has had little "judicial oversight or participation" in using deferred and non-prosecution agreements).
168. Cortney C. Thomas, Note, The Foreign Corrupt Practices Act: A Decade of Rapid Expansion Explained, Defended, and Justified, 29 REV. LITIO. 439, 452 (2010).
169. See Koehler, supra note 12, at 935-36 (explaining the almost non-existent judicial review of DPAs).
1 70. "The reluctance of companies to take these cases to trial really skews the interpretation of the FCPA because it has allowed the Justice Department to take some fairly aggressive positions." Jaclyn Jaeger, First-Ever Jury Verdict to Limit Scope of FCPA, COMPLIANCE WEEK, July, 201 1, at 20 (quoting Jessie Liu, Jenner & Block). It is possible that in 2012 the public will be able to see precisely how the DOJ interprets the FCPA. On November 8, 2011, speaking at the 26th National Conference on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer noted that the DOJ "expectfs] to release detailed new guidance on the Act's criminal and civil enforcement provisions" in 2012 in response to an OECD review of the agency's enforcement efforts. Lanny A. Breuer, Assistant Att'y Gen., Crim. Div., DOJ, Remarks Before the 26th National Conference on the Foreign Corrupt Practices Act (Nov. 8, 2011), available at http://www.justice.gov/crirninal/pr/speeches/2011/crm-speech111108.html.
171. See Lanny A. Breuer, Assistant Att'y Gen., Crim. Div., DOJ, Prepared Keynote Address to The Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (Nov. 12, 2009), available at http://www.justice.gov/criminal/pr/speeches-testimony/documents/ll-1209breuer-pharmaspeech.pdf.
172. Brendan J. Reed, Note, Sovereign Wealth Funds: The New Barbarians at the Gate? An Analysis of Legal and Business Implications of their Ascendency, 4 VA. L. & BUS. REV. 97, 98 n.l (2009); Larry Cata Backer, Sovereign Wealth Funds as Regulatory Chameleons: The Norwegian Sovereign Wealth Funds and Public Global Governance Through Private Global Investment, 41 GEO. J. INT'L L. 425, 436 (2010) ("Like much else about sovereign wealth funds, there is little consensus on a definition. The differences in definition reflect the ambiguity of the instrument itself - formally sovereign yet functionally private. It also reflects the further ambiguity even with respect to function - again traditionally sovereign but now also more aggressively private.")- Note also that the term "sovereign wealth fund" did not even come into existence until 2005. See EDWIN TRUMAN, SOVEREIGN WEALTH FUNDS: THREAT OR SALVATION? 1 (2010).
173. MARTIN A. WEISS, CONGRESSIONAL RESEARCH SERVICE, SOVEREIGN WEALTH FUNDS: BACKGROUND AND POLICY ISSUES FOR CONGRESS 4 (2008), http://fpc.state.gOV/documents/organi2ation/l 10750.pdf [hereinafter "CRS REP'T"]. The U.S. Treasury further divides SWFs into two categories, depending on whether the fund's assets are derived from commodity surpluses or other means. See Backer, supra note 172, at 441. The International Monetary Fund ("IMF") provides an even simpler and more expansive definition, noting that SWFs "can generally be defined as special investment funds created or owned by governments to hold foreign assets for longterm purposes." INT'L MONETARY FUND, GLOBAL FINANCIAL STABILITY REPORT (2007), available at http://www.imf.org/external/pubs/ft/GFSR/2007/02/pdftext.pdf. The IMF further divides SWFs into three major categories based on the functional purpose of the funds: stabilization funds, savings funds, and reserve investment corporations. Id. The OECD defines SWF as "essentially government-owned investment vehicles funded by foreign exchange assets." U.M. Econ. & Soc. Comm'n for Asia & the Pacific, Poverty & Dev. Div., Key Economic Developments and Prospects in the Asia-Pacific Region 2008, U.M. Doc. ST/ESCAP/2461 (2007), available at http://www.unescap.org/pdd/publications/key2008/key2008.pdf. The United Nations provides perhaps the most broad definition, which ignores form and function and simply declares that such funds "seek to diversify foreign exchange assets and earn a higher return by investing in a broad range of asset classes." Id.
174. Sovereign Wealth Fund Inst, What is a Sovereign Wealth Fund, Nov. 16, 2009, available at http://www.swfinstitute.org/what-is-a-swf7. See also Int'l Working Group of Sov. Wealth Funds, Sovereign Wealth Funds: Generally Accepted Principles and Practices (2008) [hereinafter The Santiago Principles] ("[SWFs are] special purpose investment funds or arrangements, owned by the general government. Created by the general government for macroeconomic purposes, SWFs hold, manage, or administer assets to achieve financial objectives, and employ a set of investment strategies which include investing in foreign financial assets. The SWFs are commonly established out of balance of payments surpluses, official foreign currency operations, the proceeds of privatizations, fiscal surpluses, and/or receipts resulting from commodity exports.").
175. See Xie & Chen, supra note 5, at 3 ("[A] SWF runs the wealth of a nation, aiming to benefit the citizens of the nation, and therefore has a nation-wide impact that cannot be restricted within a certain locality."); Richard Epstein & Amanda Rose, Symposium: The Going-private Phenomenon: The Regulation of Sovereign Wealth Funds: The Virtues of Going Slow, 76 U. CHI L. REV. 11 1, 1 14 (2009).
176. Xie & Chen, supra note 5 at 3; Epstein & Rose, supra note 175 at 1 14.
177. INT'L MONETARY FUND, GLOBAL FINANCIAL STABILITY REPORT.supra note 174, at 45-50.
178. Roland Beck & Michael Fidora, The Impact of Sovereign Wealth Funds on Global Financial Markets 8, Occasional Paper No. 91, European Central Bank (2008), available at http://ssrn.com/abstract_id= 11 44482 (using a functional analysis to look at SWFs in the absence of a universally agreed-upon definition); Epstein & Rose, supra note 175 at 1 14.
179. Xie & Chen, supra note 5, at 3. See also Tr. at 4-5, Brookings Institute, Rebuilding America: The Role of Foreign Capital, Sovereign Wealth Funds, and Global Public Investors, Mar. 11, 2011, available at http://www.brookings.edU/~/media/Files/events/201 1/031 l_sovereign_wealth/201 1031 l_sovereign_wea lth.pdf.
1 80. Since SWFs seek to maximize returns within an acceptable risk range, they are different than government monetary authorities that simply use reserves as a currency stabilizer. Xie & Chen, supra note 5, at 3.
181. Epstein & Rose, supra note 17531114-115.
1 82. Xie & Chen, supra note 5, at 3-4.
184. Beck & Fidora, supra note 178, at 6. The Kuwait Investment Board was soon followed by the Kiribati Revenue Equalization Reserve Fund in 1956. CRS REP'T, supra note 173, at CRS-6.
185. See Larry Cata Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State-Owned Enterprises, and the Chinese Experience, 19 TRANSNAT'L L. & CONTEMP. PROBS. 3, 24 (2010) [hereinafter Backer, Global Regulation].
1 86. CRS REP'T, supra note 1 73, at CRS-8.
1 87. Id. at CRS-2. This does not, however, mean that SWFs are particularly adept at investing. Indeed, their average returns are "7.2 percentage points lower on average than the market return, consistent with the imperfect portfolio diversification and poor corporate governance, such as lack of manager discipline on the part of SWF shareholders." Vidhi Chhaochharia & Luc Laeven, Sovereign Wealth Funds: Their Investment Strategies and Performance 2 (Ctr. for Econ. Policy Research, Discussion Paper Ser. No. 6959, 2008). See also Gerard Lyons, State Capitalism: The Rise of Sovereign Wealth Funds, 14 LAW & Bus. REV. AM. 179, at 9 ("Growth rates were estimated last year for twelve funds, ranging from zero to 100%. Given such a wide spread, it is clear that it is hard to say anything definite about potential growth rates.").
188. Weiss, CRS REP'T, supra note 173, at CRS-2.
189. Id. at CRS-6 (dating the origin of SWFs to 1953 when the Kuwait Investment Board began operations). See also Reed, supra note 172, at 100 (noting that "[T]He Kuwait Investment Office was set up in London in 1953 by Sheikh Abdullah Al-Salem Al-Sabah."); Simon Johnson, The Rise of Sovereign Wealth Funds, 44 FrN. & DEV. 56, 56 (Sept. 2007) (describing the rapid growth of SWFs from their inception in the 1950s).
190. Reed, supra note 172, at 100; Epstein & Rose, supra note 175 at 114-115 ("It is beyond dispute that SWFs have become important new players in global capital markets.").
191. Foreign Government Investment in the U.S. Economy and Financial Sector: Joint Hearing Before the Subcomm. on Domestic and Int'l Monetary Policy, Trade, and Technology, and the Subcomm. on Capital Markets, Insurance, and Government Sponsored Entities of the H. Comm. on Financial Services, 1 10th Cong. 8 (2008) [hereinafter 2008 House Hearing] (statement of David H. McCormick, Under Secretary for Int'l Affairs, U.S. Dep't of the Treasury). By March of 2010, 56% of the 50 largest SWFs were funds launched in the years 2000-2009. IFSL, supra note 7, at 3.
192. Compare Beck & Fedora, supra note 178, at 5, and Epstein & Rose, supra note 175, at 1 15, with IFSL, note 8, at 1 (estimating $3.8 trillion under SWF control at the end of 2009). Either estimate represents an increase from $500 billion in 1990. Epstein & Hosesupra note 175, at 1 15.
193. Epstein & Rose, supra note 175, at 115; Johnson, supra note 189, at 56. The increase in SWF coffers has been attributed to surging oil prices and the accumulation of foreign currency by Asian central banks. Epstein & Rose, supra note 175, at 115; see also Arvind Subramanian and Aaditya Matoo, Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization 12-13 (Center for Global Development, Working Paper No. 12, Feb. 2008) available at http://papers.ssm.com/abstract=1086476 (arguing that the increase in SWF coffers is due in part to exchange rate manipulation by Asian central banks).
194. See Johnson, supra note 189, at 57. See also IFSL, supra note 7, at 1 ("SWFs are likely to become more important participants in global financial markets over the coming years as inflows from trade surpluses and commodities' exports continue."); See 2008 House Hearing, supra note 191, at 4 (Chairman Kanjorski).
195. IFSL, supra note 7, at 1.
196. See 2008 House Hearing, supra note 191, at 4 (Chairman Kanjorski); While this figure is small relative to the amount of assets under the control of private asset managers, or particularly as compared to the total value of global financial assets, the impact and importance of SWFs to modem markets and commerce is clearly increasing. Beck & Fidora, supra note 178 at 12 (estimating greater than $50 trillion under private asset manager control in 2008); 2008 House Hearing, supra note 191, at 8 (statement of David H. McCormick) (estimating the value of global financial assets at $190 trillion). For instance, the value of assets under SWF control exceeds the value under control of U.S. hedge funds or private equity funds. Id. In addition, the rate of growth for SWFs equals or exceeds that of hedge funds. See, e.g.. Reed, supra note 172, at 101.
197. See Tamara Gomes, The Impact of Sovereign Wealth Fuñas on International Financial Stability 4 (Bank of Canada, Discussion Paper 2008-14, 2008) available at http://www.bankofcanada.ca/wp-content/uploads/2010/01/dp08-14.pdf. Id.; Johnson, supra note 189, at 56 ("[SWF] holdings remain quite concentrated, with the top five funds accounting for about 70 percent of total assets."). There are twenty of these funds, and these funds held an approximate $2-3 trillion in various assets. Id. As noted earlier, the two major trends that have generated many of the funds that emerged in the past two decades are the increasing price of oil (fueling Middle Eastern SWF growth) and the large trade surpluses, coupled with high savings rates, of many Asian nations. CRS REP'T, supra note 173, at CRS-6.
198. IFSL, supra note 7, at 5 ("Increasing SWF investment activity has been evident since 2003. During this period there has been a gradual shin from passive to active investment strategies.").
199. Id. at 5-6 ("This involves taking active control of companies through cross-border mergers and acquisitions or acquiring minority stakes.").
200. Id at 6. The IFSL report helpfully breaks down the SWF foreign firm investments by the percentage size of the acquired stakes: 38 % of the investment capital went towards purchasing less than 20 % of a particular firm; 23 % towards stakes in the 20-^*9 % range; 1 1 % in the 50-79 % range; 3 % in the 80-99 % range; and 25 % went towards full acquisitions. Id These investments are diversified; 42 % was invested in the financial sector, but significant investments were made in other areas, with 14 % invested in various industries, 13 % in services firms, 1 1 % in real estate, 10 % in commodities, and 10 % in other sectors of the economy. Id. at 7.
201. See, e.g., 2008 House Hearing, supra note 191, at 10 (statement of Ethiopie Tafara).
202. See Paul Rose, Sovereigns at Shareholders, 87 N.C. L. REV. 83, 122 (2008) (citing Saudi Prince Al-waleed Bin Talal's Kingdom Holding Company as a model minority owner).
203. Backer, Global Regulation, supra note 185, at 120-21 (explaining CIC investments in common stocks of the private equity firm Blackstone). While preferred shares provide a greater likelihood of dividend payment, owners of common shares are allowed to vote on corporate governance matters, which is not the case for preferred shares. Thus, a shift towards common share ownership can be seen as barkening potential corporate governance activities by SWFs. But see Rose, supra note 202, at 99-100 (explaining how many SWFs are following cautious investment principles in the United States to avoid heightened regulatory scrutiny). Interestingly, it may be the case that SWFs from nondemocratic regimes may prove to be more passive investors, as they are, like other SWFs, subject to Committee on Foreign Investment in the United States ("CFIUS") restraints (CFIUS being the interagency committee tasked with reviewing the national security implications of significant foreign investments in the United States), but are also less susceptible to internal political pressures. See Rose, supra note 2, at 1220 (evaluating the shareholder activism of the Norwegian fund, as well as CaIPERS, to suggest that democratic sponsors of funds may consider factors like environmental or social welfare concerns when participating in corporate governance).
204. For example, Lawrence Summers, the former Treasury Secretary and Director of the National Economic Council, has expressed his fears that SWFs may not always act in ways which maximize the value of their shares. Lawrence Summers, Sovereign Funds Shake the Logic of Capitalism, FlN. TIMES, July 30, 2007, available at http:^logs.ft.com/economicfonun/2007/07/sovereign-funds.html. Then-Chairman of the SEC Christopher Cox noted in 2007 that it is questionable "whether government-controlled companies and investment funds will always direct their affairs in furtherance of investment returns, or rather will use business resources in pursuit of other government interests." Christopher Cox, Chairman, Sec. & Exch. Comm'n, Keynote Address and Robert R. Glauber Lecture at the John F. Kennedy School of Government, Harvard University: The Role of Government in Markets (Oct. 24, 2007). See also 2008 House Hearing, supra note 191, at 11 (statement of Ethiopis Tafara, Dir., Office of Int'l Affairs, U.S. Sec. & Exch. Comm.).
205. See 2008 House Hearing, supra note 191, at 1 1 (statement of Ethiopis Tafara, Dir., Office of Int'l Affairs, U.S. Sec. & Exch. Comm.) ("In addition to market efficiency, transparency, enforcement, and information disparity, sovereign business and sovereign wealth funds raise other issues as well. One is increased opportunity for political corruption.").
206. Unable to identify an example where a SWF has in fact acted in this manner, critics of SWFs have pointed instead to Russia's state-owned oil company Gazprom, which has been accused of exerting strategic influence over its European investments. See Ian Traynor, Sovereign Wealth Funds Likened to Gazprom as Brussels Calls for Rules: Commission Asks SWFs for Greater Openness: Fears of Growing Wealth Wielded for Political Aims, GUARDIAN (U .K.) 28 (Feb. 28, 2008). But Gazprom's behavior has as much to do with its control over Europe's gas pipelines as the Kremlin's control over the company. Epstein & Rose, supra note 175 at 1 16. See also EDWARD LUCAS, THE NEW COLD WAR: PUTIN'S RUSSIA AND THE THREAT TO THE WEST(2008) (describing the origins of Gazprom's influence in Europe). Moreover, as discussed more fully in Part III infra, state-owned enterprises such as Gazprom present greater challenges than SWFs. Epstein & Rose, supra note 175 at 116-17. A governmentcontrolled operating company may have the power to exact concessions from a foreign company as a condition precedent to doing business with the foreign company or as the price of entry into the market via a joint venture. Id.; see also Ronald Gilson and Curtís Milhaupt, Sovereign Wealth Funds and Corporate Governance: A Minimalist Response to the New Mercantilism, 60 STAN. L. REV. 1345, 1367 (2008).
207. The effort by western nations to freeze the assets of Libyan leader Muammar Qaddafi faced significant problems in attempting to identify, much less freeze or disrupt access to, the entirety of the estimated $50-70 billion held in the Libyan Investment Fund. See From Tripoli to Mayfair: Tracking Down Libya's Mysterious Sovereign-Wealth Fund, ECONOMIST, March 10, 2011, available at http://www.economist.eom/node/l 8335210.
208. Rose, supra note 202, at 84 ("International investment implicates much more than the flow of cash and goods; considerable political issues are often at stake. Commerce may affect national security and may stoke national pride."). For many, "SWFs are guilty until proven innocent." Backer, supra note 185, at 57 (quoting Mohamed Al-Jasser, Vice Governor of the Saudi Arabian Monetary Agency, on his suspicions concerning the treatment of SWFs in certain markets). See also TRUMAN, supra note 173, at 3 (noting the broader fears playing into debates over the role of SWFs in Western economies).
The Dubai Port World's proposed acquisition of a Peninsular and Oriental Stream Navigation Company, which would have placed management of certain U.S. ports under DP World control, is an example of such a fear-based reaction, this time in relation to a proposed transaction with a SOE. Epstein and Rose, supra note 175, at 1 14-19.
209. Epstein & Rose, supra note 175, at 116 ("To date there is little evidence that any SWF has sought to lever its investment positions for either political or collateral business purposes."); Rose, supra note 202, at 87 ("SWFs have generally refrained from political investments even in countries that do not have legislation comparable to the U.S.'s foreign acquisition regulations."); David Murray, SWFs: Myths and Realities, Keynote Address, Global Sovereign Funds Roundtable, May 5, 2011 at 16-17 ("Managing a nation's capital with a non-commercial strategy 'is a recipe for huge losses rather than world domination.'"); Reed, supra note 172, at 111. See also "Sovereign Wealth Funds Starting to Embrace Transparency, Institutional Investor, (September 15, 2011), http://www.mstitationalmvestor.com/Article/2901392/Sovereign-Wealth-Funds-Starting-to-EmbraceTransparency .html?ArticleId=2901392.
210. See Anthony Wong, Sovereign Wealth Funds and the Problem of Asymmetric Information: The Santiago Principles and International Regulations, Note, 34 BROOKLYN J. INT'L L. 1081, 1084 (2009). As Wong notes, there is a concerted effort by governments and international bodies to make SWFs, as well as their dealings and structure, more transparent; as far as the authors are aware, no such efforts exist, or have been seriously contemplated, for SOEs.
211. See Remarks by Acting Under Secretary for International Affairs Clay Lowery on Sovereign Wealth Funds and the International Financial System (June 21, 2007), available at http://www.treasury.gov/press-center/press-releases/Pages/hp471.aspx (SWFs "are, in principle, longterm investors that can be expected to stick with a strategic asset allocation despite short-term losses. They are not highly leveraged. They cannot be forced by capital requirements or investor withdrawals to liquidate positions rapidly. They have access to, and frequently make use of, well-regarded private fund managers, administrators, consultants and custodians."). See also 2008 House Hearings, supra note 191, at 9 (statement of David H. McCormick) ("[T]he U.S. economy benefits from . . . open investment including investment from sovereign wealth funds."); Beck & Fidora, supra note 178, at 24 (suggesting that, if properly motivated, SWFs "may contribute to a widening of the long-term investor base. . . [and] exert a stabilising effect on financial markets .... In addition, SWFs may contribute to a more efficient sharing and diversification of risk at the global level.").
For further information on the mechanisms employed by SWFs that allow for increased market stability, see generally Gomes, supra note 197; Reed, supra note 172, at 103.
212. See OECD Investment Committee, Sovereign Wealth Funds and Recipient Country Policies 2 (2008); Langland, supra note 2, at 266-67 ("Overall, SWFs are beneficial to the global economy because they recycle trade surpluses from the global South to equity investments in the global North."); Reed, supra note 172, at 115 ("If we want to encourage stable trade liberalization, SWFs are a useful tool because SWF managers are incentivized to have long-term horizons . . . .").
213. Press Release, Int'l Fin. Corp., IFC Board Approves Initiatives for Financial Crisis Response and Sovereign Funds to Support Private Sector in Emerging Markets (Dec. 18, 2008). See generally Patrick J. Keenan & Christiana Ochoa, The Human Rights Potential of Sovereign Wealth Funds, 40 GEO. J. INT'L L. 1 151 (2009).
214. See generally Gomes, supra note 197, at 1. While it is possible that these investment strategies might have negative repercussions in OECD states if adopted broadly by other investors, SWF investment strategies have not been widely adopted, in part owing to the funds' unique relationship with governments. Id. See also Gerard Lyons, State Capitalism: The Rise of Sovereign Wealth Funds, 14 LAW & Bus. REV. AM. 179, at *4 ("A protectionist backlash against strategic investments would be damaging for global trade. . . . The rise of SWFs should be seen as a further sign of a shift in the world economy and Western countries should seize this as an opportunity to work with emerging economies . . . to find common ground rules and a code of practice.").
215. Gomes, supra note 197, at Chart 2 (showing the relative gains of SWF investment targets on the first market day following the announcement of the investment). See also Reed, supra note 172, at 113, 115 ("If we want to encourage stable trade liberalization, SWFs are a useful tool because SWF managers are incentivized to have long-term horizons . . . ."). See also IMF Survey Online, IMF Intensifies Work on Sovereign Wealth Funds, IMF SURVEY MAG. (March 4, 2008) available at http://www.imf.org/extemal/pubs/ft/survey/so/2008/POL03408A.htm ("From the viewpoint of international financial markets, SWFs can facilitate a more efficient allocation of revenues from commodity surpluses across countries and enhance market liquidity, including at times of global financial stress." ) (quoting John Lipsky, IMF's first Deputy Manager).
216. OECD Investment Committee, Sovereign Wealth Funds and Recipient Country Policies 2 (2008) [hereinafter "Sovereign Wealth Funds and Recipient Country Policies"]). But see Rose, supra note 202, at 97 ("WhUe SWFs may provide needed capital for U.S. markets . . . they often take large stock positions (in terms of investment value, although typically not in terms of voting power). These large inflows of capital may inflate asset prices. Further, a SWF could cause significant turmoil if, for reasons of national exigency, the SWF must liquidate ite positions.").
217. See Enrich et al., supra note 1 ; Dash & Sorkin, supra note 1.
218. Michael Rufino & William Jannace, FCPA and Related Issues, FINRA Presentation to the Madison Group (July 21, 2011) at 4 (on file with the authors).
219. Id. In total during the approximately two-year period, Citigroup sold a 4.9 percent stake to ABIA, a 4.4 percent stake to the Government Investment Corporation of Singapore ("GIC"), and a 1 .6 percent stake to KIA. Id. Blackstone sold a 10 percent stake to China Investment Corporation ("CIC"). Id. Carlyle Group sold a 7.5 percent stake to ABIA. Id. Merrill Lynch sold an 1 1 .3 percent stake to Temasek, a Singapore-based SWF, and a 7 percent stake to KIA. Id. Morgan Stanley sold a 9.9 percent stake to the China Investment Corporation. Id. (citing statistics generated by the European Central Bank and the Sovereign Wealth Institute).
220. See Sovereign Wealth Funds and Recipient Country Policies, supra note 216, at 2. (By injecting (Unding when "risk-taking capital was scarce and market sentiment was pessimistic," SWFs may be credited in part with lessening the impact of the subprime mortgage-related crash of 2008); Langland, supra note 2, at 273 ("Eager to capitalize on what appeared to be low-hanging fruit, SWFs injected billions of dollars - much more than they would typically spend - to rescue some of Wall Street's biggest firms.").
221. As early as 2008, the DOJ had suggested that S WFs would 611 within the scope of the FCPA if they were managed by government entities as opposed to private managers. Specifically, in October 2008, then-Chief of the DOT s Fraud Section Steven Tyrrell told attendees of a securities industry conference that firms should determine whether SWFs they deal with are managed by government officials or private asset managers. Nicholas Rummell, Cash Crunch Could Result in More Corruption Cases, FIN. WEEK, Oct. 7, 2008, available at http://www.financialweek.com/apps/pbcs.dll/article?An>=/20081007/REG/810079983. See also Peter J. Henning, For frail Street, Antibribery Inquiry Js Cause for Concern, N. Y. TIMES DEALBOOK. BLOG (Jan. 18, 2011, 1:51 PM), http://dealbook.nytimes.com/2011/01/18/for-wall-street-antibribery-inquiryis-cause-for-concem ("[W]hether dealings with [outside advisers] also falls under the law is not as clear.").
222. See supra, ?uctU.C.2.
223. Xie & Chen, supra note 5, at 6-7 (comparing SWFs to SOEs and other entities); Reed, supra note 172, at 110. David Murray, SWFs: Myths and Realities, Keynote Address, Global Sovereign Funds Roundtable (May 5, 201 1) at 16-17.
224. See id. (noting that SOEs may emerge from pure state ownership of a particular industrial sector).
225. See fupru, Part ??.1.
227. See also Backer, Global Regulation, supra note 185, at 64-65.
229. See, e.g., Murray, supra note 223, at 16-17 ("[SOEs] are typically corporations fully or partly managed by the state, that report directly to the central government with access to below market rate capital. SOEs often result from a political decision to retain government ownership. In contrast, SWFs are investment vehicles sponsored by states, run by financial experts and in some cases independent Boards. Given the problematic conflation of SOEs and SWFs, it is timely to recall that a definitional virtue of SWFs as set out by the GAPP is the distinction between these two entities."); Jocelyn Cachet, Does the Rise of Sovereign Wealth Funds Require New Investment Regulations, Dissertation, Grenoble Graduate School of Business, at 18 (on file with the authors) ("There is no possible contusion between SOEs' objectives and SWFs' ones as they are radically different; SWFs have financial purposes and investment logics specific to funds.").
230. See, e.g., Joint Economic Committee of Congress, Hearing on "Do Sovereign Wealth Funds Make the U.S. Economy Stronger or Pose National Security Risks?", Feb. 13, 2008 (testimony of Stuart E. Eizenstat), available at http://jec.senate.gov/public/?a=Files.Serve&File_id=81 Ie5838-aled-447985b3-61dl73987982 ("There is a difference, for sure, between private foreign investment and that of SWFs and their close cousins, State Owned Enterprises (SOEs). But even there, the distinction is not always as clear as it may seem. Many European companies, for example, have some government ownership through 'golden shares'. Moreover, many European governments are trying to create 'national champions' to better compete in the global marketplace."); Phillippe Gugler & Julien Chaisse, The Sovereign Wealth Funds in the European Union: General Trust Despite Concerns, Swiss NCCR Trade Working Paper, Jan. 6 2009, available at http://18.104.22.168/images/stories/publications/IPHAVP%20NCCR%202009%204%20Gugler%20Chais se%20SWF.pdf ("On the most superficial level, the difference between SWFs and SOEs is obvious: It is the same as that between any type of investment fund and any type of company. But in reality the difference is not that obvious, and is to some extent misleading, since there are SOEs that are used as a conduit for their respective state's sovereign wealth, as part either of a longer channel involving an SWF or of a shorter channel between the foreign reserve manager and the target company.").
231. Xie & Chen, supra note 5, at 6.
232. See supra Part 11.C.2.
233. Ken Stier, U.S. Crashes In on Corporate Corruption Overseas, TIME (Apr. 7, 2010) hrtp://www.time.coir^time/business/article/0,8599,1977526-2,00.html.
234. Colby Smith, DOJ Challenged on Meaning of "Foreign Official, " FCPA UPDATE (Debevois and PIimpton LLP), Nov. 2010, Vol. 2, No. 4 at 9, available at http://www.debevoise.com/files/Publication/adlOaedb-1582-4e2e-b4bb983a55cd6736/PGesentatioIl/PublicationAttachment/40a912f9-485a-45ef-89cabe27b63b9ba6/FCPAUpdateNoveniber2010.pdf. See also Koehler, supra note 160, at 410-12 (summarizing FCPA actions and what types of entities were considered instrumentalities).
235. The government has also interpreted "foreign official" broadly to include employees of SOEs "even if those employees or entities do not directly perform a traditional government function." Id.
236. Press Release, Department of Justice, Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to pay $402 Million Criminal Fine (February 11, 2009) available at http://www.justice.gov/opa/pr/2009/February/09-crm-112.html.
237. Information, United States v. Kellogg Brown & Root LLC, No. 4:09-cr-00071 (S.D. Tex. 2009) [hereinafter "KBR Information"].
240. Deferred Prosecution Agreement, United States v. Alcatel-Lucent, Case No. 10-20907 CRMoore, at A-24-A-26 [hereinafter "Alcatel-Lucent DPA "].
242. Deferred Prosecution Agreement, SEC v. Comveise Tech., Inc., 11-CV-1704-LDW [hereinafter "Converse DPA"].
243. Id.; see also Mike Koehler, "Foreign Official" Limbo - The Bar Has Been Lowered, FCPA PROFESSOR (Apr. 15, 2011, 5:38 AM ), http://fcpaprofessor.blogspot.com/2011/04/foreign-officiallimbo-bar-has-been.html (noting that the Greek government held stakes ranging from 33 to 38 percent during the time period specified in the SEC's complaint). The government's claim did not articulate what facts gave rise to OTE's "instrumentality" status with any precision, but rather the claim was based on the fact that the Greek government was the largest shareholder (a standard that could be well below the 33 to 38 percent percentage ownership that was operative in the case) and the largest customer of OTE. Id.
244. FCPA Spring Review 2011, Miller & Chevalier LLP, http://www.millerchevalier.com/Publications/MillerChevalierPublications?find=54204#Comverse (last visited Sept. 23, 201 1). As part of its settlement with the government, Comverse also entered into an NPA with the DOJ. Justice News, Comverse Technology Agrees to Pay $1.2 Million Penalty to Resolve Violations of the Foreign Corrupt Practices Act, Apr. 7, 2011, available at http://www.justice.gov/opa/pr/201 1 /April/1 l-erm-438.html. DOJ's decision not to prosecute Comverse Technology criminally was based on "the company's thorough self-investigation and the results of its investigation, voluntary disclosure of the underlying conduct, and full cooperation with the department." Id. The DOJ also acknowledged that the company undertook "extensive remedial efforts and overhauled its overall compliance culture, including through the implementation of mandatory training programs focused on anti-corruption and the use of third-party agents and intermediaries, as well as more rigorous accounting controls for the approval of third-party payments." Id.
245. Mike Koehler, "Foreign Official" Limbo . . . How Low Can it Go?, FCPA PROFESSOR (Jan. 10, 2011, 5:30 AM), http://fcpaprofessor.blogspot.com/2011/01/foreign-official-Iimbo-how-low-canit.html.
246. See KBR Information, supra note 237, at 7.
247. Id. at 2, 7.
248. See Alcatel-Lucent DPA, supra note 240, at A-9.
250. See Comverse DPA, supra note 242, at 3 (emphasis added); see Mike Koehler, "Foreign Official" Limbo: The Bar Has Been Lowered, FCPA PROFESSOR BLOG (Apr. 15, 2011, 5:38 AM), http://fcpaprofessor.blogspot.com/2011/04/foreign-official-limbo-bar-has-been.html.
251. United States v. Noriega, 2:10-cr-01031, Motion to Dismiss (C.D. CaI. Feb. 28, 2011) [hereinafter "Lindsey Motion to Dismiss"]. In the Lindsey case, the defendants are accused of violating the FCPA by bribing employees of the Comisión Federal de Electricidad ("CFE"), which the U.S. government alleges is an enterprise owned by the Mexican government. United States v. O'Shea, 4:09cr-00629, Indictment at 5 (S.D. Tex. Nov. 16, 2009); United States v. Noriega, 2:10-cr-01031, Indictment (C.D. CaI. Sept. 15, 2010).
252. United States v. Carson, 8:09-cr-00077, Motion to Dismiss (C.D. CaI. Feb. 21, 2011) [hereinafter "Carson Motion to Dismiss"]. In Carson, the defendants are accused of making numerous, improper payments to employees of Chinese, Malaysian, South Korean, and UAE-based SOEs involved in petroleum exploration or power generation. United States v. Carson, 8:09-cr-00077, Indictment at 12 (S.D. CaI. Apr. 8, 2009).
253. United States v. O'Shea, 4:09-cr-00629, Indictment at 5 (S.D. Tex. Nov. 16, 2009) [hereinafter "O'Shea Motion to Dismiss"]. In the third case in which the defense has challenged the DOJ's application of the FCPA to SOEs, United States v. O'Shea, the defendants, like the defendants in Lindsey, are accused of violating the FCPA by bribing employees of the CFE. United States v. O'Shea, 4:09-cr-00629, Indictment at 5 (S.D. Tex. Nov. 16, 2009). The motion to dismiss in O'Shea is still pending. United States v. O'Shea, 4:009-cr-00629, Motion to Dismiss (S.D. Tex. March 7, 201 1).
254. Id.; see also Smith, supra note 234, at 4.
255. Carson Ruling on Defendants ' Challenge to the DOJ's Definition of "Foreign Official": A Fact-Based Approach, FCPA Update, Debevoise & Plimpton, Vol. 2, No. 10 (May 2011) at 3 [hereinafter "FCPA Update: Carson Ruling"], available at http://www.debevoise.com/newseventspubs/publications/FCPA.
256. Carson Motion to Dismiss, supra note 252, at 15; O'Shea Motion to Dismiss, supra note 253, at 4 ("A business entity owned by the Mexican government . . . should not be deemed an 'instrumentality' because it has little in common with the rest of the series: unlike departments and agencies, it carries out commercial, not government functions.").
257. The defendants rely upon a 144-page declaration filed by Professor Michael J. Koehler (author of the FCPA Professor blog) in support of the motion to dismiss in Carson. United States v. Carson, 8:09-cr-00077, Declaration of Professor Michael J. Koehler in Support of Defendant's Motion to Dismiss Counts One Through Ten of the Indictment p. 15-16 (Feb. 28, 201 1) [hereinafter "Koehler Declaration"]. Koehler 's 144-page declaration in support of the motions to dismiss provides an extensive history of the FCPA, from early debates in 1975 before its enactment to hearings held in Congress in November 2010. Id. See also FCPA Update: Carson Ruling, supra note 255, at 3.
Koehler emphasizes the following: (1) Congress enacted the FCPA in 1977 because of concern over payments to foreign governments or foreign political parties; (2) some of the competing bills in the 94th and 95th Congresses (1975-76, 1977-78) defined "foreign government" to include, inter alia, corporations established or owned by, and subject to control by, a foreign government, but Congress chose not to include this definition in the bill that became law in December 1977; (3) the 1988 amendments clarified that facilitating payments made for "routine government action" were excluded, thus suggesting, according to Koehler, that Congress remained focused on government action; and (4) the 1998 amendments expanded the definition of "foreign official" to include officials of "public international organizations," e.g., the United Nations, following the adoption of the OECD Convention by the United States, but the 1 998 amendments did not expand the FCPA to include "public enterprises," a term mentioned and defined in the OECD Convention. Id. at p. 16-17.
The government challenged what it described as defendants* selective reading of the FCPA's legislative history, arguing that Professor Koehler's history was "chiefly revealing for what it does not contain. In spite of 150 hours and 448 paragraphs spent distilling his research, Mr. Koehler is unable to find a single reference in any part of the legislative history that Congress intended to exclude stateowned companies from the definition of instrumentality. United States v. Noriega, No. 2:10-cr-01031, Opposition to Defendants' Motion to Dismiss the First Superseding Indictment at 30 (C.D. Cai. Mar. 10, 2011).
258. Carson Motion to Dismiss, supra note 252, at 19-21. The defendants also suggested that employees of Citigroup, Morgan Stanley, and Blackstone would be considered foreign officials by virtue of the fact that SWFs have taken ownership stakes in each of these companies. Id.
259. Id. at 39-48.
260. United States v. Noriega, No. 2:10-cr-01031, Criminal Minutes - General (C.D. CaI. Apr. 20,2011).
261. Id. at 2. In rendering his decision, Judge Matz focused on the particular facts of the case, including: that the provision of electric power is a government function under the Constitution of Mexico; CFE describes itself as a government agency; Mexican government officials comprise CFE's governing board; and the President of Mexico appoints the Director General of CFE. Id. at 15. See also Joe Palazzolo, Judge Sides With DOJIn 'Foreign Official ' Ruling, WALL ST. J. CORRUPTION CURRENTS BLOO (Apr. 4, 201 1, 10:34 AM ), http://blogs.wsj.com/corruption-currents/201 1/04/04/judge-sides-withdoj-in-foreign-official-ruling/; Mike McCollum & Jaime Guerrero, Lindsey "Foreign Officiai" Motion Denied, FCPA PROFESSOR BLOG (Apr. 1, 2011, 10:35 PM), htq)://fcpaprofessor.blogspot.com/2011/04/lindsey-foreign-official-motion-denied.html.
262. Noriega, Crim. Mins. at 9.
263. Id. at 910. (CFE was created by statute as a 'decentralized public entity. Its Governing Board is comprised of various high-ranking government officials; it described itself as a government agency, and it performs a function the Mexican nation has described as a quintessential government function - the supply of electricity.).
As for the legislative history argument proffered argument by the defendants, Judge Matz found it inconclusive as to what Congress intended with regard to SOEs. Id. at 14.
264. United States v. Carson, Case No. 8:09-cr-00077-JVS, Dkt. No. 373 (C.D. CaI. May 18, 201 1). Although the rulings in Lindsey and Carson are similar, Judge Sema sets out a framework for ascertaining the circumstances under which a SOE is not an "instrumentality" of a foreign government and, in turn, when employees of a SOE are not "foreign officials" under the FCPA. See FCPA Update: Carson Ruling, supra note 255, at 4.
265. United States v. Carson, 8:09-cr-00077, Indictment at 12 (C.D. CaI. Apr. 8, 2009).
266. United States v. Carson, 8:09-cr-00077-JVS, Defendants' Notice of Motion and Motion to Dismiss Counts One Through Ten of the Indictment, Memorandum of Points and Authorities in Support Thereof at 16 (C.D. CaI. Feb. 21, 2011).
267. Id. at 12.
268. Id. The DOJ noted that the "terms are not coextensive." Id.
269. FCPA Update: Carson Ruling, supra note 255, at 5.
270. United States v. Carson, 8:09-cr-00077-JVS, Criminal Minutes - General at 5 (C.D. CaI. May 18, 201 1). See also FCPA Update: Carson Ruling, supra note 255 at 5.
271. United States v. Carson, 8:09-cr-00077-JVS, Criminal Minutes - General at 5 (C.D. CaI. May 18, 201 1) ("[SJimply assuming that a company is wholly owned by the state is insufficient for the Court to determine as a matter of law whether a company constitutes a government "instrumentality.").
272. Id. at 7.
273. Id. at 5.
275. In Lindsey, the company and two senior executives were ultimately found guilty after a jury trial, marking the first time in the FCPA's thirty-four year history that a case has ever gone to trial. See Jaeger, supra note 170. "In a statement after the verdict, Assistant Attorney General Lanny Breuer called the guilty verdicts "an important milestone" for FCPA enforcement efforts. . . . 'Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.'" Id.
276. FCPA Update: Carson Ruling, supra note 255, at 5; see also Jaeger, supra note 170, at 20 ("Until one decision finds in favor of the defense on the interpretation of foreign officials, you cannot expect to see many companies willing to take their case to trial") (quoting Sarah Wolff, Reed Smith).
277. Are Sovereign Wealth Funds State-Owned Enterprises?, COMPLIANCE BUILDING (Nov. 4, 2008), http://www.compliancebuilding.com/2008/ll/04/are-sovereign-wealth-funds-state-ownedenterprises ("Mr. Tyrell was quoted: 'recent boom of sovereign wealth funds is an area at the top of the Justice Department's hit list.' Mr. Tyrell told Financial Week that 'the DOJ was looking at both passive and active investments by U.S. securities firms into sovereign funds, and vice versa.' [ . . . ] At a recent Securities Industry and Financial Markets Association conference, Mr. Tyrell indicated that securities firms should treat employees of sovereign wealth funds as government officials for purposes of the FCPA.").
278. See Koehler Declaration, supra note 257. See also supra, Part U.A.
279. One report suggests that SWFs' use of quid pro quo arrangements could be the target of FCPA investigators. Rummell, supra note 221. SWFs are known to seek reciprocal investments from the companies they do business with. Paritosh Bansal, Mideast Sovereign Funds Seek Reciprocal Investment, REUTERS (Sept. 8, 2008, 7:46 PM), http://uk.reuters.com/article/2008/09/08/swf-mideastidUKN0841486220080908. For instance, a SWF might agree to invest in a bank on the condition that the bank assists in developing the fund's local economy. Id. Although these arrangements seem to fit under the DOJ's broad application of "anything of value," it is difficult to see them as "corrupt" arrangements. In prohibiting payments that are made "corruptly," the FCPA implies that the briber must intend to "induce the recipient to misuse his official positionf.]" H.R. REP. NO. 95-640, supra note 29, at 8. Is the fund manager misusing his position when he leverages the fund's wealth to secure a benefit for the fund's home country? What if the foreign government has directed the fund manager to secure these types of reciprocal investments? These quid pro quo arrangements where a bank agrees to conduct business in the SWF's home country do not seem to run afoul of the FCPA's prohibition of corrupt payments; rather, they are directly benefitting the government and its people. Nevertheless, the DOJ has always taken the broadest view of the FCPA, so firms engaging in these seemingly innocent arrangements should proceed with caution.
280. Langiand, supra note 2, at 273-74.
281. Id. at 274.
282. Reply Brief of Petitioner, United States v. Noriega, 2:10-cr-01031 (quoting the OECD definition of "foreign official," not the FCPA definition) (emphasis added).
283. See Backer, supra note 185, at 66 (reasoning that SWFs could acquire controlling interests in operating entities).
284. See supra Part III.3.
285. See supra Parts III.3, III.4.
286. Mike Koehler, Sovereign Wealth Funds and the FCPA. FCPA PROFESSOR BLOG (Mar. 8, 2010, 12:26 PM), htq)://fcpaprofessor.blogspot.com/2010/03/sovereign-wealth-funds-and-fcpa.html.
287. There is sufficient precedent for congressional intervention of this sort. When Congress revisited the FCPA in 1988, it did so in order to address concerns of the American business community, which had developed a fear of accidental non-compliance as a result of ambiguities in the language of the Act. See supra Part H.A. When then legislature returned ten years later to amend the FCPA yet again, it was in response to the OECD Convention and increased efforts at standardization of international norms concerning criminalization of bribery and other corrupt acts. See id. The first years of the 201Os provide a similar opportunity for Congress to address concerns regarding the government's broad latitude to define the contours of the terms "instrumentality" and "foreign officials."
288. Pub. L. No. 94-583 (1976), codified at 28 U.S.C. § 1330, 1332, 1391(f), 1441(d), and 1602-1611 (2006).
289. Pub. L. No. 110-49 (2007), codified in 31 C.F.R. 800 (2008). See also E.O. 13456 of Jan. 23, 2008 (implementing and altering FINSA).
290. 28 U.S.C. § 1603(a) (2005). Foreign states are defined in the FSIA as any foreign state, political subdivision of a foreign state, or "agency or instrumentality" of a foreign state. Id.
291. 28 U.S.C. § 1603(b) (2005).
292. See, e.g., 15 U.S.C. § 78dd-l(f)(lXA) (2006) (applying to cover transactions with "any such government or department, agency, or instrumentality" (emphasis added)).
293. 28 U.S.C. § 1603(b) (2005) (emphasis added). It bears noting that Congress does not appear to have intended to apply the FSIA to commercial activity,. See USX Corp. v. Adriatic Ins. Co., 345 F.3d 190, 207 (3d Cir. 2003) (citing H.R. Rep. No. 94-1487 at 7 (1976) to suggest that "[i]n passing the FSIA, Congress adopted the so-called restrictive theory of sovereign immunity, whereby a foreign state (including its agencies and instrumentalities) is immune from suit for its public or sovereign activities, but not for its commercial or private activities."). The House Report on the FSIA noted, however, mat the following might be considered agencies or instrumentalities: "a state trading corporation, a mining enterprise, a transport organization such as a shipping Une or airline, a steel company, a central bank, [or] an export association." H.R. Rep. No. 94-1487 at 15-16 (1976).
294. 28 U.S.C. § 1603(b) (2005).
295. 31 C.F.R. § 800.302(d) (2008). This presupposes that the foreign company has no intent to actively involve itself in the business decisions of the acquisitions.
296. See id. for language Congress may consider adopting. The regulation describes, as a possible transaction not subject to FINSA and Committee on Foreign Investment in the United States ("CFIUS"),
[a] purchase of voting securities or comparable interests in a United States person solely for the purpose of investment, as defined in §800.219, if, as a result of the acquisition, (1) The foreign person would hold ten percent or less of the outstanding voting securities of the U.S. person, regardless of the dollar value of the voting securities so acquired or held, or (2) The purchase is made directly by a bank, trust company, insurance company, investment, company, pension fund, employee benefit plan, mutual fund, finance company or brokerage company in the ordinary course of business for its own account, provided that a significant portion ofthat business does not involve the acquisition of entities.
297. Under the FSIA, control has no dispositive value in instrumentality status determinations absent majority ownership by a foreign state. Dole Food Co. v. Patrickson, 538 U.S. 468, 477 (2003) ("Majority ownership by a foreign state, not control, is the benchmark of instrumentality status. ... A corporation is an instrumentality of a foreign state under the FSIA only if the foreign state itself owns a majority of the corporation's shares.").
While judicial interpretative guidance on the FSIA extends beyond the scope of the present Article, it suffices to say that the various federal appellate courts have found cause to develop mechanisms beyond mere ownership, reading these actors into the "organ" element of the definition of instrumentality and avoiding altogether the problematic ownership interest analysis. For instance, the Ninth Circuit has noted that "the ultimate question is 'whether the entity engages in a public activity on behalf of the foreign government.'" PowerEx Corp. v. Reliant Energy Servs., 391 F.3d 1011, 1026 (9th Cir. 2004). Presaging Judge Sema, the Fifth Circuit has employed a test that analyzes "(1) whether the foreign state created the entity for a national purpose; (2) whether the foreign state actively supervises the entity; (3) whether the foreign state requires the hiring of public employees and pays their salaries; (4) whether the entity holds exclusive rights to some right in the [foreign] country, and (S) how the entity is treated under foreign state law." Kelly v. Syria Shell Petroleum Dev. B. V., 213 F.3d 841, 84647 (5th Cir. 2000) (citing Med. Corp. v. McGonigle, 955 F.Supp. 374, 379 (E.D.Pa. 1997)). The Third Circuit augments the Ninth and Fifth Circuits, adding "the ownership structure of the entity" as a consideration into whether the entity is an instrumentality for FSIA purposes, while stressing that the entity "must engage in a public activity on behalf of the foreign government. Requiring less would open the door to situations in which a party only tangentially related to a foreign state could claim foreign state status." USX Corp., 345 F.3d at 209.
298. OECD Convention, supra note 61, at Art 1 (emphasis added).
300. Id. (emphasis added).
301. The OECD Convention defines "public function," as "any activity in àie public interest, delegated by a foreign country, such as the performance of a task delegated by it in connection with public procurement." ItL at Commentary U 1 5. While this may bring within its fold SOEs or SWFs, die Convention suggests that "[a]n official of a public enterprise . . . performfs] a public function unless the enterprise operates on a normal commercial basis in the relevant market, i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges." Id. at ¶ 15.
302. The Foreign Corrupt Practice Act: Hearing Before the Crime, Terrorism, and Homeland Sec. Subcomm. of the H. Judiciary Comm., 112 th Cong. 8 (2011) (written statement of former AG Michael Mukasey), available at http://judiciary.house.gov/hearings/pdf7Mukasey0614201 l.pdf.
303. Id. at 8.
306. While the district courts in Lindsey and Selna failed to articulate functional standards for these terms (see infra notes 25 1-276 and accompanying text), it appears that the judiciary will shortly be presented with another opportunity to do so. In December 2011, Carlos Rodriguez, a former telecommunications executive who was convicted in October 201 1 in the United States District Court for the Southern District of Florida for bribing employees of Telco, Haiti's state-owned telecommunications company, disclosed his intent to appeal his conviction in part based on the district court's interpretation of the terms "foreign official" and "instrumentality" under the FCPA. Appellant Carlos Rodriguez's Motion for Release Pending Appeal, United States v. Carlos Rodriguez, No 111533 1 -C (December 29, 201 1) at 7-14. Specifically, Rodriguez argued that the district court abused its discretion in refusing to adopt his proposed jury instruction defining "instrumentality" as "part of the foreign government itself." Id. at 7. Instead, the court instructed the jury that an instrumentality was "a means or agency through which a function of the foreign government is accomplished." Id. at 7-8. Rodriguez argued that this definition "impermissibly broadened the reach of the statute," and deprived him of the defense that Telco was not an instrumentality of the Haitian government. Id at 8-13.
The Rodriguez case marks the first time the question of how to define "foreign official" and "instrumentality" will be addressed at the appellate level. See Christopher Matthews, The Big Test for the FCPA's Foreign Official Definition?" CORRUPTION CURRENTS BLOG, (Jan. 3, 2012, 6:02 PM), http:/blogs.wsj.com/corruption-currents/2012/01/03/the-big-test-for-the-fcpas-foreign-officialdefinition/. The Eleventh Circuit should capitalize on this opportunity and apply the "dominant influence" test.
Court E. Golumbic & Jonathan P. Adams*
* "Court E. Golumbic is a Managing Director at a financial services firm. He is also an Adjunct Professor at the University of Pennsylvania Law School and a former Assistant United States Attorney with the United States Attorney's Office for the Southern District of New York.
Jonathan P. Adams is an associate at Sidley Austin LLP and is a member of that firm's Complex Commercial Litigation, White Collar Crime, and Privacy, Data Security, and Information Law practice groups in its Washington, D.C. office. The views expressed herein are those of the authors and do not express those of Sidley Austin LLP. The authors would like to express their gratitude to Robert Werner, Robert Ruff, Russell Leino, and Robert deButts for their assistance in writing this article.