‘Foreign Official’ Challenge Likely to Fail in FCPA Case
By Greg Katz | May 9, 2011 10:39 pm

SANTA ANA, Calif. – U.S. District Judge James Selna indicated Monday that he did not see a fundamental flaw in the Justice Department’s understanding of who counts as a “foreign official” under the Foreign Corrupt Practices Act, making it unlikely that the strongest challenge yet to the government’s enforcement of the law will succeed.

Selna wrote in a tentative ruling that he would not dismiss the case against executives of Control Components, Inc., despite the defendants’ argument that employees at state-owned companies can never be considered “foreign officials” under the law.

The CCI executives are accused of paying bribes to employees at state-owned customers in China, Malaysia and United Arab Emirates.

In February they asked the court to dismiss the charges against them and said the government’s case fell outside the scope of the law, which bars bribes to any “officer or employee of a foreign government, or any department, agency or instrumentality thereof.”

The defendants argued that state owned companies are not departments, agencies, or instrumentalities of governments.

Last month the Justice Department said such a challenge transforms a fact-based question into a sweeping legal one.

On Monday, Selna agreed.

“The Court concludes that the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact,” he wrote in the tentative order.

If the ruling becomes final, jurors in the case will be the arbiters of whether employees of the foreign companies in the case count as government officials.

As for the extensive legislative history compiled by Butler University professor Michael J. Koehler and submitted by the defendants to support their case, they needn’t have bothered, Selna said.

“The Court finds that the statutory language of the FCPA is clear, that the statutory scheme is coherent and consistent, and that resort to the legislative history of the FCPA is unnecessary,” Selna wrote.

The ruling gives the government a huge win as it prepares for trial later this year, and follows a similar ruling in an unrelated case against Lindsey Manufacturing Co.

In that case, A. Howard Matz in Los Angeles last month described the defendants’ challenge as “improper, unfounded and incorrect.”

At the Monday hearing, lawyers for the CCI executives argued that the government’s definition of what constituted an “instrumentality” was simply too unclear to prove the recipients of the alleged bribes are government officials, rather than mere employees working for businesses that happened to be partially owned by a government.

Such uncertainty makes it impossible for Americans doing business abroad to know whose palms they aren’t allowed to grease, they said.

Nicola Hanna of Gibson, Dunn & Crutcher LLP said the law is “arbitrary and vague” on the point. If it’s not clear to the lawyers, it will confound jurors, he said.

“How is a jury to decide whether it’s in or it’s out?” Hanna asked.

The judge responded, “You’d argue it’s all out.”

Defense lawyers pointed out that American companies like The Boeing Co. and General Motors Co. might be considered “government instrumentalties” under prosecutors’ reading of the law, but that line of reasoning did not appear to move the judge.

The government appeared to be preparing to litigate the issue as a trial approached.

“The government anticipates there will be extensive briefing in the jury instructions phase on what is an instrumentality,” said prosecutor Nathaniel Edmonds, who argued the government’s case Monday.

The defense countered that defining the law’s actual meaning shouldn’t wait for a jury.

“Why the surprise,” Hanna said. “Why don’t we find out now?”

He surmised that the government was merely using the vagueness as an incentive for the defendants to settle.

“You’re gonna have to take your chances at trial to find out,” Hanna said. “That can’t be right.”

A trial for the remaining Control Components defendants is set for October 4. Several other executives previously pleaded guilty.

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