Indiana Law Review


The Foreign Corrupt Practices Act in the Ultimate
Year of Its Decade of Resurgence

Mike Koehler*

Introduction

The Foreign Corrupt Practices Act (FCPA) was enacted in 1977, yet FCPA
enforcement was largely non-existent for most its history.

1

But during the past

decade, enforcement agencies resurrected the FCPA from near legal extinction.
FCPA enforcement activity in 2009, the ultimate year in the decade of the
FCPA's resurgence, suggests that FCPA enforcement will remain a prominent
feature on the legal landscape throughout this decade. After providing a brief

overview of the FCPA and FCPA enforcement, this Article highlights FCPA
issues and trends from the 2009 enforcement year and provides a glimpse of the

road ahead as the FCPA enters a new decade.

I. The Foreign Corrupt Practices Act Summarized

The FCPA is part of the Securities Exchange Act of 1934,2 and it has two
main provisions: the antibribery provisions

3
and the books and records and

internal control provisions.
4
To better understand the FCPA issues and trends

from the 2009 enforcement year, these provisions, as well as FCPA enforcement,
are described next.

A. Antibribery Provisions

The antibribery provisions generally prohibit U.S. companies (whether public
or private) and their personnel; U.S. citizens; foreign companies with shares listed

on a U.S. stock exchange or otherwise required to file reports with the SEC; or
any person while in U.S. territory from: (i) corruptly paying, offering to pay,

* Assistant Professor of Business Law at Butler University, Indianapolis, Indiana.

Professor Koehler founded and writes the FCPA Professor Blog (http://fcpaprofessor.blogspot.com

) and his FCPA expertise and views are informed by a decade of legal practice experience at an
international law firm during which he conducted FCPA investigations around the world,
negotiated resolutions to FCPA enforcement actions with government enforcement agencies, and
advised clients on FCPA compliance and risk assessment.

1. See Dionne Searcey, U.S. Cracks Down on Corporate Bribes, WallSt.J., May26, 2009,
at Al , available at http://online.wsj .com/article/SB 1 24329477230952689.html (noting that FCPA
enforcement was "largely dormant for decades"). See, e.g., Shearman & Sterling LLP, FCPA
Digest, Cases and Review Releases Relating to Bribes to Foreign Officials Under the

Foreign Corrupt Practices Act of 1977, available at http://www.shearman.com/files/

upload7fcpa_digest.pdf (listing FCPA enforcement actions chronologically); see also Foreign
Corrupt Practices Act (FCPA), http://www.justice.gov/crirninal/fraud/docs/statute.html (last visited

Mar. 8,2010).

2. See 15 U.S.C. §§ 78m(b), 78dd-l, 78dd-2, 78dd-3, 78ff (2006).

3. See infra Part LA.

4. See infra?'art LB.



390 INDIANA LAW REVIEW [Vol. 43:389

promising to pay, or authorizing the payment of money, a gift, or anything of

value; (ii) to a foreign official; (iii) in order to obtain or retain business.
5

Although routinely described as a law applicable only to U.S. companies and

citizens,
6
the FCPA, as written and as enforced, can also apply to foreign

companies and foreign citizens.
7

In fact, the largest ever FCPA enforcement
action (in terms offines and penalties) is against Siemens Aktiengesellschaft (also

known as "Siemens AG"), a German corporation with shares traded on a U.S.
exchange since 200 1.

8

The FCPA's antibribery provisions have three core elements: "anything of
value"

9
to a "foreign official"

10
for the purposes of "obtaining or retaining

business."
11

This Part briefly explores these core elements.

1. ''Anything of Value.
"—The FCPA does not define the term "anything of

value," nor is the statute's legislative history illuminating.
12 FCPA enforcement

actions demonstrate that there is no de minimis value associated with this

element
13
and 2009 FCPA enforcement actions allege facts concerning "things of

value" across a wide spectrum. For instance, in the enforcement action against

Kellogg Brown & Root LLC and various other Halliburton Company affiliates,
"things of value" provided to Nigerian "foreign officials" included cash-stuffed

briefcases or cash-stuffed vehicles left in hotel parking lots.
14 On the other end

ofthe spectrum, the enforcement action against UTStarcom Inc. involved "things
of value" provided to Chinese "foreign officials" including "executive training

programs at U.S. universities" paid for by the company even though the programs

5. See 15 U.S. §§ 78dd-l, 78dd-2, 78dd-3 (2006).

6. See, e.g. , Elizabeth Spahn, International Bribery: The Moral Imperialism Critiques, 1

8

MINN. J. Int'lL. 155, 157 (2009) ("The U.S. Foreign Corrupt Practices Act (FCPA) criminally

prohibits U.S. corporations from bribing officials of foreign governments in order to obtain

business has been in effect for thirty years.").

7. See\5U.S.C. §§ 78dd-l, 78dd-3.

8. See, e.g., Press Release, SEC Charges Siemens AG for Engaging in Worldwide Bribery
(Dec. 15, 2008), available at http://www.foley.com/files/SiemensSECPressRelease.pdf; Press

Release, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act
Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 1 5, 2008), available

at http://www.fcpaenforcement.com/FILES/tbl_s31Publications/FileUploadl37/5527/Siemens

DOJPressRelease.pdf.

9. 15U.S.C. §78dd-l(a).

10. Id § 78dd-l(a)(l).

11. Id § 78dd- 1(a)(1)(B).

12. S. Rep. No. 95-114, at 17 (1977), reprinted in 1977 U.S.C.C.A.N. 4098, 4115; H.R.

CONF. Rep. No. 95-831, at 12 (1977), reprinted in U.S.C.C.A.N. 4121, 4124.

13. See, e.g., In re The Dow Chem. Co., Exchange Act Release No. 5528 1 , 2007 SEC LEXIS
286, at *7 (Feb. 13, 2007) (nothing that although certain improper payments "were in small

amounts—well under $ 1 00 per payment—the payments were numerous and frequent").
14. See Criminal Information

fflf
17-20, United States v. Kellogg Brown & Root LLC, No.

H-09-071 (S.D. Tex. Feb. 6, 2009), available at http://fcpaenforcement.com/FILES/tbl_

s3 lPublications/FileUploadl 37/57 14/KBRCriminalInformation.pdf.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 39

1

"were not specifically related to [the company's] products or business."
15

2. "Foreign Official
"—The FCPA defines "foreign official" as:

any 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

ofany such government or department, agency, or instrumentality, or for

or on behalf of any such public international organization.
16

There is no dispute that elected foreign government officials, other foreign

heads of state, and employees of foreign government agencies such as foreign

equivalents of the U.S. Treasury Department, U.S. State Department, etc., are

"foreign officials" under the FCPA. Improper payments to such "foreign
officials" to "obtain or retain business" are what Congress intended to prohibit by

passing the FCPA in 1977. 17

But the majority of 2009 FCPA enforcement actions (as well as others in
recent years) have absolutely nothing to do with such government officials.

Rather, the alleged "foreign officials" are often employees of alleged foreign

state-owned or state-controlled enterprises (SOEs).
18

The enforcement agencies

deem such individuals (regardless of rank or title
19
and regardless of how such

15. Complaint
If 16, SEC v. UTStarcom, Inc., Case No. CV 09-6094 (N.D. Cal., Dec. 31,

2009), available at http://www.sec.gov/litigation/complaints/2009/comp21357.pdf.

16. 15 U.S.C. §§ 78dd- 1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A) (2006).

1 7. See S. Rep.No. 95-1 14, at 1-3 (1977), available at http://www.justice.gov/criminal/fraud/

fcpa/history/1 977/senaterpt-95- 1 14.pdf(noting in connection with the history ofthe bill
—

"[d]uring

the 94th Congress, the Committee on Banking, Housing, and Urban Affairs held extensive hearings

on the matter of improper payments to foreign government officials by American corporations;

noting in connection with a summary of the bill
—

"[the bill] makes it a crime for U.S. companies

to bribe a foreign government official for the specified corrupt purposes" and "[tjaken together, the

accounting requirements and criminal prohibitions of Title I should effectively deter corporate

bribery of foreign government officials." (emphasis added); see also H. REP. No. 94-83 1 , at 5

(1977), available at http://www.justice.gov/criminal/fraud/fcpa/history/1977/corruptrpt-94-83 1 .pdf

(consolidating similar, but not identical, House and Senate bills and noting that "[b]y incorporating

provisions from both bills, the conferees clarified the scope ofthe prohibition by requiring that the

purpose of the payment must be to influence any act or decision of a foreign official (including a

decision not to act) or to induce such official to use his influence to affect a government act or

decision") (emphasis added); H. Rep. No. 95-640, at 1 ( 1 977), available at http://www.justice.gov/

criminal/fraud/fcpa/history/1977/houseprt-95-640.pdf (noting in connection with the need for the

legislation "[m]ore than 400 corporations have admitted making questionable or illegal payments.

The companies, most ofthem voluntarily, have reported paying out well in excess of$300 million

in corporate funds to foreign government officials, politicians, and political parties.") (emphasis

added).

18. See infra notes 120-28 and accompanying text.

1 9. Lay-Person's Guide to FCPA, available at http://www.justice.gov/criminal/fraud/docs/

dojdocb.html ("The FCPA applies to payments to any public official, regardless of rank or

position.").



392 INDIANA LAW REVIEW [Vol. 43:389

individuals may be classified under local foreign law20) as "foreign officials"
under the theory that their employers (often times a company with publicly traded
stock and other attributes of private business) are an "instrumentality" of a

foreign government.
21 The enforcement agencies' interpretation of the key

"foreign official" element of an FCPA antibribery violation is far from an
academic issue-spotting exercise. Rather, it is at the core ofa significant number
of 2009 FCPA enforcement actions as demonstrated in Part II.

3. "Obtain or Retain Business.
"—The third general element of an FCPA

antibribery violation is "obtain or retain business."
22

In other words, the "thing

of value"
23

corruptly offered or paid to the "foreign official" must be for the

purposes of

(i) influencing any act or decision of such foreign official . . . (ii)

inducing such foreign official ... to do or omit to do any act in violation

of the lawful duty of such foreign official ... or (iii) 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,

in order to assist such issuer in obtaining or retaining business for or

with, or directing business to, any person.
24

In contrast to the "foreign official" element and many other FCPA elements
and issues, this substantive element has been subject to judicial scrutiny. In

United States v. Kay, a case of first impression, the issue concerned whether

payments to Haitian "foreign officials" for reducing customs and sales taxes owed
to the Haitian government could fall within the FCPA's scope.25 The issue
presented was in contrast to a typical FCPA scenario in which a company allegedly
makes improper payments to a "foreign official" to secure a foreign government

20. See Opinion Procedure Release, Dep't of Justice, No. 94-01 (May 13, 1994), available

at http://www.justice.gov/criminal/rraud/fcpa/opinion/1994/9401.html (opining that a general

director of a state-owned enterprise being transformed into a joint stock company is a "foreign

official" under the FCPA despite a foreign law opinion that the individual would not be regarded
as either a government employee or a public official in the foreign country). Pursuant to 1 5 U.S.C.

§ 78dd-l(e) (2006), parties may submit contemplated actions or business activity to the DOJ and

obtain a DOJ opinion whether the contemplated action or business activity violates the FCPA.

However, the DOJ's opinion has no precedential value, and its opinion that the contemplated

conduct is in conformance with the FCPA is entitled only to a rebuttable presumption should an
FCPA enforcement action be brought because of the conduct. See Foreign Corrupt Practices Act
Opinion Procedure, 28 C.F.R. §§ 80.1-80.16 (2009), available at http://www.justice.gov/

criminal/fraud/fcpa/opinion/frgncrpt.html.

2 1

.

See Procedure Release, supra note 20.

22. 15 U.S.C. §§78dd-l(a)(9)(B), 78dd-2(a)(l)(B), 78dd-3(a)(l)(B) (2006).

23. Id. § 78dd- 1(a)(3).

24. Id.

25. See United States v. Kay, 359 F.3d 738 (5th Cir. 2004).



2010] THE FOREIGN CORRUPT PRACTICES ACT 393

contract.
26

In Kay, the Fifth Circuit Court of Appeals concluded, like the lower court,

that the "obtain or retain business" element was ambiguous, and it thus analyzed

the FCPA's legislative history.
27

In reviewing the legislative history, the court

was convinced that Congress intended to prohibit a range ofpayments wider than
payments that directly influence the acquisition or retention of government

contracts.
28

The court thus held that making payments to a "foreign official" to
lower taxes and custom duties in a foreign country can provide an unfair

advantage to the payer over competitors and thereby assist the payer in "obtaining

and retaining business."
29

But the Kay court empathically stated that not all such payments to a "foreign
official" outside the context of directly securing a foreign government contract

violate the FCPA; it merely held that such payments could violate the FCPA.30

According to the court, the key question of whether such payments constitute an

FCPA violation depend on whether the payments were intended to lower the
company's costs of doing business in Haiti enough to assist the company in
obtaining or retaining business in Haiti.

31
The court then listed several

hypothetical examples of how a reduction in customs and tax liabilities could
assist a company in obtaining or retaining business in a foreign country. 32 On the
other hand, the court also recognized that "[t]here are bound to be circumstances"

in which a customs or tax reduction merely increases the profitability of an

existing profitable company and presumably does not assist the payer in obtaining
or retaining business.

33

Thus, contrary to popular misperception,
34 Kay does not hold that all

payments to a "foreign official" for avoiding customs duties or sales taxes in a

foreign country fall within the FCPA's scope. Rather, the decision merely holds
that Congress intended for the FCPA to apply broadly to payments intended to
assist the payer, directly or indirectly, in obtaining or retaining business and that

payments to a "foreign official" to reduce customs and tax liabilities can, under

appropriate circumstances, fall within the statute.

Despite the equivocal nature of the Kay holding, the decision clearly

26. See, e.g., In re United Indus. Corp., Exchange Act Release No. 60005 (May 29, 2009),

available at http://www.sec.gov/litigation/admin/2009/34-60005.pdf(instituting FCPA enforcement
action concerning payments to Egyptian Air Force officials to build a military aircraft depot for

Egypt's Air Force).

27. See Kay, 359 F.3d at 743-44.

28. See id. at 749-50.

29. See id. at 755-56.

30. Id.

31. Id.

32. See id. at 759-60.

33. Id. at 760.

34. See Chadbourne & Park LLP, United States Supreme Court Denies Certiorari in
Controversial Foreign Corrupt Practices Act Case: Expansive Enforcement of the FCPA Likely
to Continue, http://www.chadbourne.com/clientalerts/2008/fcpa/ (last visited Mar. 26, 2010).



394 INDIANA LAW REVIEW [Vol. 43 :389

energized the enforcement agencies. Post-Kay there has been an explosion in

FCPA enforcement actions, including actions in 2009, where the alleged
improper payments involve customs duties and tax payments or are otherwise

alleged to have assisted the payer in securing foreign government licenses,

permits, and certifications which assisted the payer in generally doing business

in a foreign country.
35

In short, the FCPA's antibribery provisions generally prohibit those subject
to the statute from corruptly paying or offering "anything of value" to a "foreign

official" in order to "obtain or retain business." Because of the FCPA's third-
party payment provisions, described below, this prohibition is both direct and

indirect.

4. Third-Party Payment Provisions.—The FCPA's broad third-party
payment provisions prohibit those subject to its provisions from directly making

payments meeting the above elements, as well as providing anything of value to

"any person, while knowing" that all or a portion of the thing of value will be

given, directly or indirectly, to a "foreign official" to "obtain or retain business."
36

Like other FCPA elements, the enforcement agencies broadly interpret this
knowledge requirement. The knowledge element may be satisfied when one has
actual knowledge that a third party is providing "anything ofvalue" to a "foreign

official" to "obtain or retain business" and also when one"has a firm belief that
such circumstance exists or that such result is substantially certain to occur" or

"is aware of a high probability of the existence of such circumstance, unless the

person actually believes that such circumstance does not exist."
37

B. Books and Records and Internal Control Provisions

The FCPA, as originally enacted in 1977 and at present, also contains books
and records and internal control provisions.

38
In contrast to the antibribery

provisions, the books and records and internal control provisions only apply to

35. See, e.g., Complaint H 1, 51, SEC v. Nature's Sunshine Prods, et al., No. 2:09CV0672
(CD. Utah July 31, 2209), available at http://www.sec.gov/litigation/complaints/2009/

comp21162.pdf (charging FCPA violations involving payments to Brazilian customs agents to
import certain unregistered products into Brazil); Helmerich & Payne, Inc., Non-Prosecution
Agreement, Statement of Facts |4 (July 9, 2009), available at http://www.law.virginia.edu/pdf/

faculty/garrett/helmerich.pdf [hereinafter Helmerich & Payne, Inc.]; In re Helmerich & Payne, Inc.
Cease and Desist Order ffl 5-8, Release No. 60400 (S.E.C. July 30, 2009), available at

http://www.sec.gov/litigation/admin/2009/34-60400.pdf [hereinafter In re Helmerich & Payne]
(charging FCPA violations involving payments to various officials and representatives of the
Argentine and Venezuelan customs services in connection with the importation and exportation of

goods and equipment related to the company's business operations in those countries).

36. 15 U.S.C. §§ 78dd-l(a)(3), 78dd-2(a)(3), 78dd-3(a)(3) (2006).

37. See id. § 78dd-l(f)(2)(A)-(B); see also Kenneth Winer & Gregory Husisian, The
'Knowledge ' Requirement of the FCPA Anti-Bribery Provisions: Effectuating or Frustrating
Congressional Intent? WHITE-COLLAR Crime, Oct. 2009, at 10, available at http://www.foley.

com/files/tbl_s31Publications/FileUploadl37/6535/FCPAWinerHusisian2009.pdf.

38. 15 U.S.C. § 78m(b)(2)(A)-(B) (2006).



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 395

entities with "a class of securities" registered pursuant to the securities laws or

entities otherwise "required to file reports" pursuant to the securities laws

(collectively "Issuers").
39 As a practical matter,40 the books and records and

internal control provisions apply only to publicly-held companies with shares

traded on a U.S. exchange—a category which can include numerous foreign
companies with shares traded on a U.S. exchange.

41

The books and records provisions require Issuers 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."
42

The companion
internal control provisions require Issuers to "devise and maintain a system of

internal accounting controls sufficient to provide reasonable assurances

that"—among other things:
(i) transactions are executed in accordance with management's general

or specific authorization; (ii) transactions are recorded as necessary (I)

to permit preparation of financial statements . . . (II) to maintain

accountability for assets; [and] (iii) access to assets is permitted only in

accordance with management's general or specific authorization . . . ,
43

C. Enforcement ofthe Foreign Corrupt Practices Act

The FCPA is both a civil statute and a criminal statute, and because it is part
ofthe securities law, both the Department ofJustice (DOJ) and the Securities and
Exchange Commission (SEC) have enforcement authority. Like other securities

law violations (such as insider trading), the issue of intent and a prosecutor's

ability to satisfy the higher burden of proof required for a criminal conviction

(beyond a reasonable doubt) may determine whether an FCPA violation is
pursued with criminal charges or merely civil charges. In terms of which

enforcement agency (DOJ or SEC) will prosecute the charges, the SEC has civil
enforcement authority only, and, even more constrained, it only regulates Issuers.
The end result is that the DOJ "is responsible for all criminal enforcement" ofthe
statute (both the antibribery and books and records and internal control

39. Id.

40. In rare instances, a company may still be "required to file periodic reports" pursuant to

the securities laws, yet not have publicly traded shares. See The FCPA Blog, http://www.fcpablog.
com/blog/20 1 0/

1

1\ O/non-public-issuer-discloses-investigation.html (Jan. 1 0, 20 1 0, 1 0:08) (noting

that PBSJ Corporation, while not having any publicly traded securities, is nevertheless required to

file periodic reports with the SEC given the extent of its shareholders (mostly current and former

employees).

41

.

See, e.g., Press Release, U.S. Resolves Probe Against Oil Company that Bribed Iranian

Official (Oct. 13, 2006), available at http://www.justice.gov/opa/pr/2006/October/06_crm_

700.html ("Although Statoil is a foreign issuer, the Foreign Corrupt Practices Act applies to foreign

and domestic public companies alike, where the company's stock trades on American exchanges

. . . .").

42. 15 U.S.C. § 78m(b)(2)(A) (2006).

43. Id. § 78m(b)(2)(B).



396 INDIANA LAW REVIEW [Vol. 43:389

provisions) and civil enforcement of the antibribery provisions against non-

Issuers subject to the FCPA jurisdiction.44 The SEC is responsible "for civil
enforcement of the antibribery provisions with respect to [I]ssuers" as well as

civil enforcement of the books and records and internal control provisions.
45

Because improper payments that violate the FCPA's antibribery provisions
are also often disguised or inaccurately recorded on the company's books and

records, many FCPA enforcement actions against Issuers include parallel DOJ
and SEC enforcement actions for both antibribery violations and books and
records violations.

46
Further, internal control violations are often also pursued in

connection with antibribery and books and records violations on the theory that

effective internal controls would have prevented the improper payments and
improper recording of the payments.

47
Thus, as to Issuers, the FCPA is often a

three-headed monster when improper payments are made.

II. FCPA Trends and Issues from the 2009 Enforcement Year

The 2009 FCPA enforcement year saw the emergence of new trends and
issues as well as the continuation of certain aggressive enforcement theories.

Notable trends and issues from the 2009 FCPA enforcement year include the
undeniable fact that FCPA risk is omnipresent, the clear FCPA risks posed by
foreign agents, the emerging trend of individual (as opposed to just corporate)

FCPA prosecutions, and the troubling continuation of certain aggressive FCPA
theories of liability. These trends and issues are described below in more detail.

A. FCPA Risk Is Omnipresent

For much ofthe FCPA's history, the business community largely viewed the
FCPA as applying only to large companies, often resource extraction companies,
doing business in emerging markets. But with the increase in globalization, and

with domestic market saturation, particularly in a recession economy, it is no

longer just large resource extraction companies doing business in overseas

markets that need to be concerned with the FCPA. Although a company like
Exxon Mobil or Raytheon (given its large foreign government customer base)
may indeed have a higher FCPA risk profile, the FCPA equally applies to small
and medium sized companies, including those in Indiana, doing business or
seeking business in countries such as China and India. If the increase in FCPA
enforcement over the last decade has taught anything, it is that all companies, in

all industries, doing business in all countries face FCPA risk and exposure. This

44. See Lay-Person's Guide to FCPA, supra note 19.

45. Id

46. See Press Release, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of

Foreign Bribery in China (Dec. 31, 2009), available at http://www.justice.gov/opa/pr/

2009/December/09-crm- 1390.html; SEC v. UTStarcom, Inc., Litigation Release No. 21357 (Dec.

31, 2009), available at http://www.sec.gov/litigation/litreleases/2009/lr21357.htm [hereinafter

UTStarcom, Inc. Litigation Release].

47. See UTStarcom, Inc. Litigation Release, supra note 46.



2010] THE FOREIGN CORRUPT PRACTICES ACT 397

salient fact is demonstrated by the below chart which lists the 2009 corporate

FCPA enforcement actions and provides details as to the industry and foreign
jurisdiction(s) involved.

Corporate FCPA Enforcement Actions (2009)—Industries and Jurisdictions48

Company Industry Jurisdiction(s)

Avery Dennison Corp.
49 Consumer products, adhesives,

and materials

China, Indonesia, and

Pakistan

Control Components Inc.
50

Valve manufacturer serving the

power, oil and gas, and pulp and

paper industries

China, South Korea,

Malaysia, and United Arab

Emirates

Helmerich & Payne Inc. 51 Energy exploration and
production

Argentina and Venezuela

ITT Corp.
52

Engineering and manufacturing

company serving the water and

fluids management and defense

and security industries

China

48

.

Excluded from the chart are two Iraqi Oil-For Food enforcement actions involving AGCO
Corporation and Novo Nordisk A/S. See, e.g., Press Release, AGCO Corp. to Pay $1 .6 Million in
Connection with Payments to the Former Iraqi Government Under the U.N. Oil-For-Food Program

(Sept. 30, 2009), available at http://www.foley.com/files/DOJagcopenalty.pdf; Press Release, Novo

Nordisk Agrees to Pay $9 Million Fine in Connection with Payment of $1 .4 Million in Kickbacks

Through the United Nations Oil-For-Food Program (May 11, 2009), available at

http://www.foley.com/files/NovoDOJRelease.pdf. These actions involved kickback payments to

the Iraqi government—not to any particular "foreign official," and thus, the conduct was not
actionable under the FCPA's antibribery provisions. See id. Even so, the payments and recording

of the payments still resulted in an FCPA enforcement action for books and records and internal
control violations. See id. This Article will refer to the enforcement actions represented in this

chart (minus these two exclusions) as the "2009 Corporate FCPA Enforcement Actions."
49. Complaint, SEC v. Avery Dennison Corp., No. CV09-5493DSF (CD. Cal. July 28,

2009), available at http://www.sec.gov/litigation/complaints/2009/comp21 156.pdf.

50. Criminal Information, United States v. Control Components Inc., No. SACR09-00162

(CD. Cal. July 28, 2009), ava//a6/e^http://www.justice.gov/criminal/pr/press_releases/2009/07/

07-3 1 -09control-guilty-information.pdf.

5 1

.

Helmerich & Payne, Inc., supra note 35; In re Helmerich & Payne, supra note 35.
52. Complaint, SEC v. ITT Corp., No. l:09-cv-00272 (D.D.C Feb. 11, 2009), available at

http://www.sec.gov/litigation/complaints/2009/comp20896.pdf.



398 INDIANA LAW REVIEW [Vol. 43:389

KBR/Halliburton Co.
53

Engineering, procurement, and

construction company serving

the oil and gas industry

Nigeria

Latin Node, Inc.
54

Telecommunications Honduras and Yemen

Nature's Sunshine Products,

Inc.
55

Nutritional supplements and

personal care products

Brazil

United Industrial Corp.
56

Defense Egypt

UTStarcom Inc.
57

Telecommunications China, Thailand, and

Mongolia

As highlighted by the above chart, the FCPA does not discriminate against
any one industry doing business in any particular country. The 2009 enforcement
year also demonstrates that it is just not Asian, African, or Middle Eastern

markets that present FCPA risks as several of the above enforcement actions
concerned conduct "closer to home" in the Western Hemisphere—a region that
is often overlooked in terms of FCPA compliance. The breadth of 2009
enforcement actions, both in terms of the companies involved and the countries

where the alleged conduct took place, show that FCPA risk is present in all
industries operating in all countries.

B. Third Party Agents Pose a Risk

The primary means of doing business or expanding business in a foreign
market is often to engage a foreign agent.

58 A foreign agent brings to the table
what a non-resident company lacks—an understanding and appreciation for the
local business environment and solid relationships with key business

actors—both key ingredients to a non-resident company's success in a foreign

53. Complaint, SEC v. Halliburton Co., No. 4:09-399 (S.D. Tex. Feb. 11, 2009), available

at http://www.sec.gov/litigation/complaints/2009/comp20897.pdf; Criminal Information, supra

note 14.

54. Criminal Information, United States v. Latin Node, Inc., No. 09-20239-CR-

HUCK/O'Sullivan (Mar. 23, 2009 S.D. Fla.), available at http://fcpaenforcement.com/FILES/tbl_

s31Publications/FileUploadl37/5945/ItemlLatinNode.pdf.

5 5 . Complaint, supra note 3 5

.

56. In re United Indus. Corp., Exchange Release No. 6005 (May 29, 2009), available at

http://www.sec.gov/litigation/admin/2009/34-60005.pdf.

57. UTStarcom, Inc. Non-Prosecution Agreement (Dec. 31, 2009), available at

http://www.law.virginia.edu/pd^faculty/garrett/utstarcom.pdf; Complaint, SEC v. UTStarcom, Inc.,

supra notQ 15.

58. This section uses the generic term "foreign agent" to refer to a wide range of foreign

third-party business partners such as foreign representatives, foreign distributors, foreign

consultants, foreign customs brokers, and foreign joint venture partners.



2010] THE FOREIGN CORRUPT PRACTICES ACT 399

market.
59

Use of foreign agents is particularly high in growth markets such as China

and India where understanding and navigating through complex bureaucracies is

often a key ingredient to business success.
60

Further, in many foreign countries,
including most notably those in the Middle East, engaging a local agent or having

a local sponsor is a requirement before a non-resident company can do business
in the country.

61

But these attractive features of a foreign agent (i.e., knowledge of the local

business environment and relationships with key business actors) also present the

most troublesome risks for a company obligated to comply with the FCPA in
doing business in overseas markets. The FCPA risks posed by foreign agents is
demonstrated by the below chart which lists the 2009 corporate FCPA
enforcement actions involving, in whole or in part, foreign agent conduct.

Corporate FCPA Enforcement Actions (2009)—Foreign Agents

Company Conduct

Avery Dennison Corp.
62

According to the SEC Complaint and Cease and Desist Order, Avery

Dennison Corporation's indirect subsidiary Avery (China) Co. Ltd.

paid, either directly or indirectly through others including

distributors, several kickbacks, sightseeing trips, and gifts to

Chinese foreign officials with the purpose and effect of improperly

influencing decisions by the foreign officials to assist Avery China

to obtain or retain business.

59 . Jamie Anderson et al
.
, GlobalBusiness—Lessons From the Developing World, WALLST.

J., at R6, Aug. 17, 2009. This article profiles two companies that have penetrated markets in the

developing world through engagement of local partners. Id. One company was able to succeed in

rural Nigeria by working with local people who understood "local dynamics" and a "deep

understanding ofhow to manage the local environment." Id. Another company flourished in India

by "benefitting] from [the] wisdom" of local businesspeople already running business in the

market. Id.

60. See, e.g. , Danone Pulls Out ofDisputed China Venture, WALL ST. J., Oct. 1 , 2009, at B

1

(noting that "[fjoreign firms have reported billions in sales through Chinese partnerships.

International giants such as Procter & Gamble, Starbucks and General Motors have operated wholly
or in part through joint ventures in China").

6 1

.

See, e.g. , Lisa Middlekauff, To Capitalize on a Burgeoning Market? Issues to Consider

Before Doing Business in the Middle East, 7 RICH. J. GLOBAL L. & Bus. 159, 170 (2008).
62. SEC v. Avery Dennis Corp., Litigation Release No. 21156 (July 28, 2009), available at

http://www.sec.gov/litigation/litreleases/2009/lr21 156.htm; Complaint, supra note 49.



400 INDIANA LAW REVIEW [Vol. 43:389

Control Components Inc.63 According to the DOJ Criminal Information, Control Components

Inc. made improper payments through its employees, agents, and

consultants to (among others) officers of Chinese and Korean state-

owned or state-controlled entities in order to obtain or retain

business. Often times, the agents and consultants were used as

"pass-through" entities to facilitate the improper payments.

Helmerich & Payne, Inc.64 According to the DOJ Non-Prosecution Agreement and the SEC's
Cease and Desist Order, Helmerich & Payne Inc. acknowledged
responsibility for the conduct of two wholly-owned second tier

subsidiaries, Helmerich & Payne (Argentina) Drilling Company and
Helmerich & Payne de Venezuela C.A. for payments made by
subsidiary employees and agents to customs officials in Brazil and

Argentina to induce the officials to allow import and export of goods

that were not within applicable regulations thereby evading higher

duties and taxes on the goods.

ITT Corp.65 According to the SEC's Complaint, ITT's wholly-owned Chinese

subsidiary, Nanjing Goulds Pumps Ltd. (NGP), made, either directly

or indirectly through third-party agents payments to employees of

Chinese Design Institutes (DIs) (some of which were Chinese state-

owned entities that assisted in the design of large infrastructure

projects in China). The SEC alleged that NGP employees made

certain of the payments through agents using inflated commissions

to the agents with the understanding that the agents would then make

payment to the DI employees who specified and recommended NGP

products.

Kellogg Brown & Root
LLC/KBR,

Inc/Halliburton Co.
66

According to the DOJ Criminal Information, Kellogg Brown & Root
LLC participated in a joint venture that made millions of dollars in

"consultingfee" payments to a United Kingdom andJapanese agent

for use in bribing Nigerian "foreign officials." Similarly, the SEC

complaint alleges that KBR Inc. and Halliburton Co. participated

and/or controlled and supervised entities that participated in the joint

venture that entered into the sham contracts with the two agents to

help facilitate the bribe payments.

63

.

See Criminal Information, supra note 50; Press Release, Control Components Inc. Pleads

Guilty to Foreign Bribery Charges and Agrees to Pay $ 1 8.2 Million Criminal Fine (July 3 1 , 2009),

available at http://wwwjustice.gov/criminal/pr/press_releases/2009/07/07-3 1 -09control-guilty.pdf.

64. See Helmerich & Payne, supra note 3 5 ; Press Release, Helmerich & Payne Agrees to Pay
$1 Million Penalty to Resolve Allegations of Foreign Bribery in South America (July 30, 2009),

available at http://www.justice.gov/opa/pr/2009/July/09-crm-741 .html.

65. Complaint, supra note 52; SEC v. ITT Corp. Litigation Release No. 20896 (Feb. 1 1,
2009), available at http://www.sec.gov/litigation/litreleases/2009/lr20896.htm.

66. See Complaint, supra note 53; Criminal Information, supra note 14.



2010] THE FOREIGN CORRUPT PRACTICES ACT 401

Latin Node, Inc.
67

According to the DOJ Criminal Information, Latin Node, Inc. made

improper payments to officials of Hondutel (the Honduran

government-owned telecommunications company) and TeleYemen

(the Yemeni government-owned telecommunications company). In

Honduras, the DOJ alleged that Latin Node caused LN

Comunicaciones (a wholly-owned Guatemalan subsidiary) and

Servicios IP, S.A. (a Guatemalan company nominally owned by two

LN Comunicaciones employees) to sign a purported consulting

agreement with a company believed to be controlled by a foreign

officials' brother. The DOJ alleged that LN Comunicaciones'

employees signed checks to Servicios IP knowing and intending that

some or all of the money would be passed along to Hondutel

officials. In Yemen, the DOJ alleged that Latin Node, while seeking

to enter the Yemeni market, learned that Yemen Partner A had

obtained an agreement with TeleYemen at a favorable rate through

his privately owned company. Latin Node sought to partner with

Yemen Partner A to gain entry into the Yemeni market even though

Latin Node understood that Yemen Partner A had received the

favorable rate by making corrupt payments to certain Yemeni

officials.

Nature's Sunshine

Products, Inc.
68

According to the SEC's Complaint, Nature's Sunshine Products, Inc.

(NSP), through the conduct of its wholly-owned subsidiary in Brazil,

made cash payments to customs broker agents, some of which was

later used to pay Brazilian customs officials so that the officials

would allow NSP Brazil to import unregistered product into Brazil.

United Industrial Corp.
69

According to the SEC Cease and Desist Order, United Industrial

Corporation's (UIC), indirect wholly owned subsidiary, ACL

Technologies Inc. (ACL) made payments to aforeign agent to obtain

or retain business with the Egyptian Air Force. As described in the

Order, ACL's former President authorized payments to the agent

while knowing or consciously disregarding the high probability that

the agent would offer, provide or promise at least a portion of the

payments to Egyptian Air Force officials for the purpose of

influencing the officials to direct business to UIC through ACL.

67. See Criminal Information, supra note 43; Press Release, Latin Node Inc. Pleads Guilty

to Foreign Corrupt Practices Act Violation and Agrees to Pay $2 Million Criminal Fine (Apr. 7,

2009), available at www.justice.gov/criminal/pr/press_releases/2009/04/04-07-09LatinNode-

Plead.pdf.

68. See Complaint, supra note 54; SEC v. Nature's Sunshine Prods., Inc., Litigation Release

No. 2 1 1 62 (July 3 1 , 2009), available at http://www.sec.gov/litigation/litreleases/2009/lr2 1 1 62.htm.

69. See In re United Indus. Corp., Exchange Release No. 60005 (May 29, 2009), available

at http://www.sec.gov/litigation/admin/2009/34-60005.pdf.



402 INDIANA LAW REVIEW [Vol. 43:389

UTStarcom Inc. 70 According to the SEC's Complaint, the company "made payments to

purported consultants in China and Mongolia who provided no

documented services, under circumstances that showed a high

probability that the payments would be used to bribe" foreign

officials.

The FCPA risks in utilizing a foreign agent as demonstrated by the above
enforcement actions is most striking given that there were a total of nine

corporate FCPA enforcement actions in 2009. 71 Thus, all of the 2009
enforcement actions against companies involved (in whole or in part) foreign

agent conduct.

Engaging a foreign agent and maintaining a relationship with that agent can

expose a company to FCPA liability under both the FCPA's antibribery and
books and records and internal control provisions. When a foreign agent is used
to make or facilitate an improper payment to a "foreign official" to "obtain or
retain business," sham consulting contracts and/or inflated commission payments
are often utilized thus leading to improper recordings in the company's books and

records. Even if the foreign agent is engaged by a distant subsidiary or affiliate,
and even if the improper recording is made in that subsidiary's or affiliate's
books and records, a parent company will still likely face books and records
exposure. The enforcement theory is that the subsidiary's or affiliate's books and
records are consolidated with the parent's books and records for financial

reporting purposes. A parent company will also face internal controls exposure
on the theory that had the parent implemented sufficient internal controls

throughout its organization, the improper payment would never had occurred.

This controversial enforcement theory resembles strict liability and is best

demonstrated by the 2009 FCPA enforcement action against Halliburton Co.72

In the Halliburton enforcement action, the company was held liable under the
FCPA's books and records and internal control provisions based on the conduct
of agents utilized, not by Halliburton, but by a joint venture in which Halliburton

participated indirectly through subsidiaries. Even though there was no allegation
that Halliburton knew of the improper conduct by the two agents (a U.K. agent
and a Japanese agent), Halliburton was nevertheless held liable based on the
allegation that Halliburton exercised control and supervision over the subsidiaries

(such as KBR) that participated in the joint venture. 73

For instance, the SEC alleged that Halliburton exercised control and
supervision over KBR and that during the relevant time period: (i) KBR's board
of directors consisted solely of senior Halliburton officials; (ii) the senior

70. Complaint, supra note 9; UTStar com., Inc. Litigation Release, supra note 46; Press

Release, supra note 46.

71. See The FCPA Blog, http://ww.fcpablog.eom/blog/2009/12/3 1/2009-fcpa-enforcement-
index.html (Dec. 31, 2009, 3:15).

72. See supra notes 53, 66 and accompanying text.

73. See supra notes 53, 66 and accompanying text.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 403

Halliburton officials hired and replaced KBR's senior officials, determined
salaries, and set performance goals; (iii) Halliburton consolidated KBR's
financial statements into its own, and all of KBR's profits flowed directly to
Halliburton and were reported to investors as Halliburton profits; and (iv) KBR's
former CEO discussed the projects at issue with senior Halliburton officials, who
were aware of the joint venture's use of the U.K. Agent, even though the SEC
does not allege that this individual or anyone else at KBR told Halliburton
officials that the U.K. Agent would use money obtained from the joint venture to
bribe Nigerian officials.

74

The SEC further alleged that while Halliburton's legal department conducted
a due diligence investigation ofthe U.K. Agent, the due diligence was inadequate

because Halliburton's policies did not require a specific description ofthe agent's

duties and because the agent did not agree to any accounting or audit of fees

received.
75

Further, the SEC alleged that Halliburton and KBR attorneys never
learned the identity ofthe owners ofthe Gibraltar-based consulting company used

by the U.K. Agent and did not check all of the agent's references, some of which

turned out to be false.
76 As to the Japanese Agent, the SEC alleged that

Halliburton conducted no due diligence and that Halliburton's policies and

procedures were deficient because it failed to properly scrutinize the agreement

with the agent.
77
The SEC further alleged that payments to the U.K. and Japanese

Agents were falsely characterized as legitimate "consulting" or "services" fees in

numerous Halliburton and KBR records (when, in fact, they were bribes) and thus
charged Halliburton with not only FCPA internal control violations, but also
books and records violations as well.

78

The FCPA enforcement action against Halliburton and its affiliated entities
sends a "proceed with caution" message to any company seeking to engage a
foreign agent to assist in obtaining or retaining business. Parent companies

should pay particular attention to the Halliburton action because FCPA exposure
may arise not only from agents it engages, but also from agents engaged by all
subsidiaries and affiliates over which the parent company exercises control and
supervision.

C. The Year ofthe Individual

Although the 2009 FCPA enforcement year saw the Kellogg, Brown &
Root/KBR, Inc./Halliburton Company enforcement action involving a massive
bribery scheme in Nigeria (a record-setting enforcement action against a U.S.

company given the $579 million in combined criminal and civil penalties
79

),

74. See Complaint, supra note 53, f 30.

75. See id. 131.

76. See id. % 32.

11. See id. |36.

78. See id. 1 37.

79. Marcia Coyle, Halliburton andKBR to Pay $579 Million in Penalties in Nigerian Bribe
Case, NAT'L L.J., Feb. 12, 2009, available at http://www.law.com/jsp/article.jsp?id=

1202428219124.



404 INDIANA LAW REVIEW [Vol. 43 :389

corporate FCPA prosecutions largely slowed to a trickle in the second half of
2009. Whether the 100-plus cases widely reported to be in the "pipeline" are
taking longer to resolve,

80
being resolved informally with no public disclosure,

or about to burst onto the scene in 2010 remains an open question.
Nevertheless, the biggest FCPA issue from the 2009 enforcement year, and

a clear emerging trend, is the focus on individual FCPA violators. 81 The DOJ's
pursuit of individuals is no surprise as the deterrent effect of an individual losing

his or her liberty is no doubt more powerful than a corporation paying a multi-
million fine with corporate money via a non-prosecution or deferred prosecution
agreement (NPA/DPA). Assistant Attorney General Lanny Breuer, in a speech
before a FCPA audience in November 2009, underscored this point when he said
that DOJ's pursuit of individuals was "no accident." He said that "prosecution
of individuals is a cornerstone of [DOJ's] enforcement strategy," and that "the

prospect of significant prison sentences for individuals should make clear to
every corporate executive, every board member, and every sales agent that we
will seek to hold you personally accountable for FCPA violations."82

1. Casting a Wider Net.—As indicated by Breuer' s remarks, corporate
employees are not the only subjects of FCPA scrutiny. A significant
development from the 2009 enforcement year is also a focus on agents or
consultants engaged by companies to help facilitate improper payments. For
instance, in November 2009, Paul Novak (a former consultant of Willbros
International Inc.) pleaded guilty to a substantive count of violating the FCPA
and a conspiracy count for his role in facilitating payments to Nigerian foreign

officials.
83 The Novak prosecution represents an FCPA triangle of sorts in that

individual Willbros employees, as well as the corporation itself, previously settled

FCPA enforcement actions based on the same core conduct.84 In connection with
the Novak plea, Breuer said that the "use of intermediaries to pay bribes will not
escape prosecution under the FCPA" and that the DOJ "will continue to hold
accountable all the players in an FCPA scheme—from the companies and their
executives who hatch the scheme, to the consultant they retain to carry it out."85

80. Roger Witten, Foreign Corrupt Practices Act Compliance, 2009 EMERGING ISSUES 472,

Dec. 14, 2009 (citing Remarks of Mark Mendelsohn, Deputy Chief, Fraud Section of DOJ's

Criminal Division, The 22nd National Forum on the Foreign Corrupt Practices Act, American

Conference Institute (Nov. 17, 2009)).

81. See The FCPA Blog, supra note 71 (listing individuals criminally indicted, pleading
guilty, or found guilty, ofFCPA violations in 2009).

82. Lanny A. Breuer, Assistant Att'y Gen., DOJ, Crim. 1 Division, The 22nd National Forum

on the Foreign Corrupt Practices Act (Nov. 17, 2009), available at http://www.justice.gov/

criminal/pr/speeches/2009/ 11/11-1 7-09aagbreuer-remarks-fcpa.pdf.

83

.

See Press Release, Former Willbros International Consultant Pleads Guilty to $6 Million

Foreign Bribery Scheme (Nov. 12, 2009), available at http://www.justice.gov/opa/pr/2009/

November/09-crm- 1 220.html.

84. See FCPA Professor, http://fcpaprofessor.blogspot.com/search/label/Paul%20Novak
(Nov. 13,2009,13:37).

85. Press Release, supra note 83.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 405

Other agents or consultants criminally indicted in 2009 include U.K. citizens

Jeffrey Tesler and Wojciech Chodan for their alleged roles in the
KBR/Halliburton Nigeria scheme

86
and Canadian citizen OusamaNaaman for his

role in connection with an Iraqi Oil-For-Food matter.
87

Notwithstanding these

indictments, there still exists a widely held misperception that foreign nationals

are not subject to the FCPA.88 But in 1998, the FCPA's antibribery provisions
were amended to, among other things, broaden the jurisdictional reach of the
statute to prohibit "any person" from making improper payments through "use of

the mails or any means or instrumentality of interstate commerce" or from doing
any other act "while in the territory of the United States" in furtherance of an

improper payment.
89

Thus, as to these foreign agents/consultants, the DOJ
alleged a U.S. nexus in that e-mail communications concerning the bribe

payments were sent through U.S. Internet servers and improper payments passed

through U.S. bank accounts.
90

Another significant development from the 2009 enforcement year is a
demonstrated commitment by the DOJ to target "foreign official" recipients of
bribe payments. In a November 2009 speech at global anti-corruption
conference, Attorney General Eric Holder urged nations to work together to
ensure that "corrupt officials do not retain the illicit proceeds oftheir corruption"

and announced a "redoubled commitment on behalf of the [DOJ] to recover"
funds obtained by foreign officials through bribery.

91

Because the FCPA only applies to bribe-payers and not bribe-takers,92 the
FCPA is not a tool in DOJ's pursuit of "foreign officials." But other legal
avenues are available to the DOJ to hold "foreign official" bribe recipients
accountable as two examples from 2009 demonstrate. In January 2009, in the

aftermath of the record-setting Siemens enforcement matter, the DOJ filed a
forfeiture action against bank accounts located in Singapore (money in these
accounts flowed through U.S. financial institutions) that were used to bribe the

86. See Press Release, Two UK Citizens Charged by United States with Bribing Nigerian
Government Officials to Obtain Lucrative Contracts as Part ofKBR Joint Venture Scheme, (Mar.
5, 2009), available at http://www.justice.gov/criminal/pr/press_releases/2009/03/03-05-09tesler-

charged.pdf; see supra notes 53, 66 and accompanying text.

87. See Press Release, Canadian National Charged with Foreign Bribery and Paying

Kickbacks Under the Oil For Food Program (July 3 1 , 2009), available at http://www.justice.gov/

criminal/pr/press_releases/2009/07/07-3 l-09_naaman-indict.pdf.

88. See Spahn, supra note 6, at 157.

89. See 15 U.S.C. § 78dd-3(a) (2006) (emphasis added).

90. See Indictment, United States v. Tesler, No. H-09-098 (S.D. Tex. Feb. 17, 2009),

available at http://www.justice.gov/criminal/pr/press_releases/2009/03/03-05-09tesler-

indictment.pdf; Indictment, United States v. Naaman, No. 1 :08-cr-00246 (D.D.C. Aug. 7, 2008),

available at http://www.mediafile.com/7ztvyjidxzez.

9 1

.

Eric Holder, Att'y Gen., Opening Plenary ofthe VI Ministerial Global Forum on Fighting

Corruption and Safeguarding Integrity (Nov. 7, 2009), available at http://www.justice.gov/ag/

speeches/2009/ag-speech-09 1 1 07.html.

92. See United States v. Castle, 925 F.2d 831 (5th Cir. 1990).



406 INDIANA LAW REVIEW [Vol. 43:389

son of the former Bangladeshi Prime Minister.
93

In announcing the forfeiture

action, a DOJ official said that the action "shows the lengths to which U.S. law
enforcement will go to recover the proceeds offoreign corruption."

94
The official

said that the DOJ will not only prosecute companies and executives who violate
the FCPA, but will also use forfeiture laws "to recapture the illicit facilitating
payments often used in such schemes."

95
In addition, in December 2009, the DOJ

criminally indicted (in what is believed to be a first) two "foreign officials" in

connection with an FCPA enforcement action. Robert Antoine and Jean Rene
Duperval, among others, were charged with money laundering conspiracy and
substantive money laundering given that their U.S. bank accounts were connected
with the bribery scheme.

96

2. The Summer of Trials.—The year of the individual also saw the summer
of FCPA trials against individuals. Business entities involved in FCPA
enforcement actions have historically shown zero interest in challenging the
enforcement agencies' aggressive prosecution theories, holding the agencies to

their burden ofproof, and enduring the uncertainties of trial. In fact, no business

entity has publicly challenged either enforcement agency in an FCPA case in the
last twenty years.

97
Thus, corporate FCPA prosecutions are routinely settled

through an NPA or DPA. Because an NPA is subject to no judicial scrutiny, and
a DPA is subject to no meaningful judicial scrutiny,98 there is no judicial scrutiny
in most FCPA enforcement actions whether factual evidence exists to support
each of the legal elements of an FCPA violation. Further, judicial scrutiny of
aggressive enforcement theories, upon which so manyFCPA enforcement actions
are based, is also largely absent.

Individuals involved in an FCPA enforcement action, faced with a loss of
liberty, are more inclined to challenge the enforcement agencies and the summer

93. See Complaint, United States v. All Assets Held in the Name of Zasz Trading &
Consulting (D.D.C. Jan. 9, 2009), available at http://www.fcpaenforcement.com/FILES/tbl_

s3 lPublications/FileUploadl 37/5602/ForfeitureDOJComplaint.pdf.

94. Press Release, Department of Justice Seeks to Recover Approximately $3 Million in

Illegal Proceeds from Foreign Bribe Payments (Jan. 9, 2009), available at http://www.justice.

gov/criminal/pr/press_releases/2009/0 1 /0 1 -09-09foreign-bribes.pdf.

95. Id.

96. See Indictment, United States v. Joel Esquenazi et al., No. 09-21010 (S.D. Fla. Dec. 4,

2009), available at http://www.justice.gov/criminal/pr/press_releases/2009/12/12-7fraudhaiti-

indict_0.pdf. According to the indictment, Antoine and Duperval are both former Directors of

International Relations at Haiti Teleco—the alleged state-owned national telecommunications
company—and thus "foreign officials," at least under the enforcement agencies' aggressive
interpretation of that term. Id.

97. See The FCPA Blog, http://www.fcpablog.com/blog/20 1 0/2/1 0/a-gesture-of-justice.html
(Feb. 9, 2010 17:27) ("Not a single corporate defendant, big or small, has fought Foreign Corrupt

Practices Act charges in court for the past two decades.").

98. &?eU.S. Gov'tAccountability Off., GAO-10-1 10, DOJHasTaken StepstoBetter

Track Its Use of Deferred and Non-Prosecution Agreements, But Should Evaluate

Effectiveness 12, 25 (2009), available at http://www.gao.gov/new.items/dl01 10.pdf.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 407

of 2009 was the most active trial period in the history of the FCPA.
a. Frederic Bourke and Azerbaijan bribery.—The most noteworthy FCPA

trial in 2009 involved Frederic Bourke. The trial centered on Bourke'

s

participation, as an investor, in the privatization of the State Oil Company of the
Azerbaijan Republic. This investment was also made by former U.S. Senate
Majority Leader George Mitchell and Columbia University (among others), and

Bourke reportedly lost $8 million." In July 2009, a federal jury convicted

Bourke for conspiring to pay bribes to Azerbaijan officials in a "massive scheme"

to bribe according to the DOJ.
100 The DOJ post-verdict press release states that

evidence presented at trial established that Bourke "was a knowing participant in

a scheme to bribe senior government officials in Azerbaijan with several hundred

million dollars in shares of stock, cash, and other gifts."
101

The release further
notes that "the bribes were meant to ensure that those officials would privatize

[the oil company] in a rigged auction that only Bourke, fugitive Czech investor

Viktor Kozeny and members of their investment consortium could win, to their
massive profit."

102

The Bourke case is arguably the most complex and convoluted case in the
FCPA's history. 103 The case included a nearly decade long investigation that
spanned the globe, dismissal of FCPA substantive charges on statute of
limitations grounds, reinstatement of the FCPA substantive charges, a
superseding indictment which then dropped the FCPA substantives charges, and
a six-week jury trial during which many observers believe that the jury confused
the FCPA's "knowledge" standard with negligence. 104 Further, even though
Judge Shira Scheindlin denied Bourke' s post-verdict motions, she did reject the

DOJ's aggressive interpretation ofthe FCPA's knowledge element. 105 Moreover,

99. See Memorandum of Law in Support of Defendant Frederic Bourke, Jr.'s Post-Trial

Motion for Entry of a Judgment of Acquittal Pursuant to Fed. R. Crim. P. 29 or for a New Trial
Pursuant to FED. R. CRIM. P. 33 at 3, 25, 33, United States v. Frederic Bourke, Jr., 05 Cri. 518,

(Aug. 1 0, 2009) (on file with author); Chad Abraham, BourkePlans Extensive Defense in Oil Scam:

Part-time Aspen Resident Met with Azerbaijan Leader, ASPEN TIMES, Dec. 20, 2005, available at

http://www.aspentimes.com/article/20051220/NEWS/112200025.

100. Press Release, Connecticut Investor Found Guilty in Massive Scheme to Bribe Senior

Government Officials in the Republic of Azerbaijan (July 10, 2009), available at

http://www.justice.gov/opa/pr/2009/July/09-crm-677.html.

101. Id.

102. Id.

103. For more on the extensive background of the Bourke case, see Andrew Longstreth,

Azerbaijan Bribes Put One Mogul on Trial, Another in Exile, LAW.COM (Oct. 9, 2009), available

«/http://www.law.conVjsp/law/international/LawArticleIntl.jsp?id=1202434399273&Azerbaijan_

Bribes_Put_One_Mogul_on_Trial_Another_in_Exile.

1 04. See, e.g. , The FCPA Blog, http://www.fcpablog.com/blog/2009/7/20^ack-to-bourke.html
(July 19, 2009, 20:38); The FCPA Blog, http://www.fcpablog.eom/blog/2009/7/ 14/knowing-what-
you-dont-know.html (July 13, 2009, 20:12); The FCPA Blog, http://www.fcpablog.com/blog/
2009/7/ 12/bourkes-verdict-only-in-america.html (July 12, 2009, 19:08).

1 05

.

See Kenneth Winer & Gregory Husisian, Recent Opinion Sheds Light on the Relevance



408 INDIANA LAW REVIEW [Vol. 43:389

Judge Scheindlin rejected the ten-year prison sentence sought by the DOJ and
sentenced Bourke to 366 days in prison (followed by three years supervised

release).
106

At sentencing, even Judge Scheindlin stated that the case troubled her
and that after years of supervising the case, it was "still not entirely clear to [her]
whether Mr. Bourke is a victim, or a crook, or a little bit of both."

107
Although

the trial phase ofthe Bourke case is over, the case continues on appeal on grounds

including the FCPA's "knowledge" element and Bourke remains free on bail. 108

b. Louisiana Congressman William Jefferson's freezer cash.—The second
FCPA trial of the summer of 2009 involved former Louisiana Congressmen
William Jefferson. A federal jury acquitted Jefferson on a substantive FCPA
charge.

109
That charge, according to the criminal indictment, centered on

allegations that Jefferson attempted to bribe (with the infamous cash in the

freezer
110

) Nigerian officials including the former Nigerian Vice President to

assist himself and others obtain or retain business for a Nigerian

telecommunications joint venture.

'

x l

But Jefferson was convicted of a variety of
charges (solicitation of bribes, honest services wire fraud, money laundering,
racketeering and conspiracy).

112
Just what conspiracy remains unclear. The

indictment charged conspiracy to solicit bribes, to commit honest services wire
fraud, and to violate the FCPA, but the jury was instructed that it only needed to
find Jefferson guilty on two out ofthree ofthose counts and the jury verdict form

did not require the jury to specify which counts it agreed upon.
113

The judge

ofDue Diligence to the FCPA 's "Knowledge" Element, 4 CORP. ACCOUNTABILITY REP., at 2-3,
Nov. 13, 2009, available at http://www.foley.comy

/

files/tbl_s31Publications/FileUploadl37

/6597/CorporateAccount2009.pdf.

1 06. See Press Release, Connecticut Investor Frederic Bourke Sentenced to Prison for Scheme

to Bribe Government Officials in Azerbaijan (Nov. 11, 2009) available at http://www.justice.

gov/opa/pr/2009/November/09-crm- 1 2 1 7.html.

107. Chad Bray, Bourke Sentenced to One Year in Azerbaijan Bribery Case, WALLSt. J. , Nov.

10, 2009, at B4, available at http://online.wsj.com/article/SB100014240527487044024045

74528003117098132.html.

108. The FCPA Blog, http://www.fcpablog.eom/blog/2009/l 1/19/Jefferson-and-bourke-are-
released-on-bail.html (Nov. 18,2009, 18:18).

109. See Press Release, Former Congressman William J. Jefferson Convicted of Bribery,

Racketeering, Money Laundering and Other Related Charges (Aug. 5, 2009), available at

http://www.justice.gov/opa/pr/2009/August/09-crm-775.html.

1 1 0. Dana Milbank, So $90, 000 Was in the Freezer. What 's Wrong with That?, WASH. POST,

May 23, 2009, at A2.
111. See Press Release, Congressman William Jefferson Indicted On Bribery, Racketeering,

Money Laundering, Obstruction of Justice, and Related Charges (June 4, 2007), available at

http://www.justice.gov/opa/pr/2007/June/07_crm_402.html; US Probes Nigeria Vice-President,

BBC NEWS, Aug. 29, 2005, available at http://news.bbc.co.Uk/2/hi/africa/4192186.stm.
112. See Press Release, supra note 109.

113. See Jonathan Tilove, William Jefferson Case Will Always Be Rememberedfor Cash in

the Freezer, TlMES-PlCAYUNE (New Orleans), Aug. 5, 2009, available at http://www.nola.

com/news/index.ssf/2009/08/williamjefferson_case_will_al_l.html.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 409

sentenced Jefferson to thirteen years in federal prison and he remains free on bail

pending his appeal.
114

Notwithstanding the fact that a jury found Jefferson not

guilty of substantive FCPA charges and notwithstanding the ambiguous nature
ofthe jury's conspiracy verdict, the DOJ still maintains that Jefferson was found
guilty of FCPA violations. 115

c. Gerald and Patricia Green 's Thailandfilm festival bribes.—The third
FCPA trial of the summer of 2009 involved Los Angeles-area entertainment
executives Gerald and Patricia Green. A federal jury convicted the Greens of
substantive FCPA violations, conspiracy to violate the FCPA, and other
charges.

116
According to the DOJ post-verdict release, evidence introduced at

trial showed that "beginning in 2002 and continuing into 2007, the Greens

conspired with others to bribe the former governor of the [Tourism Authority of

Thailand (TAT)] in order to get lucrative film festival contracts as well as other

TAT contracts."117 The Greens await sentencing. 118

These trials were indeed rare and the fact remains that every corporate FCPA
enforcement action over the last two decades has been resolved without a trial and

nearly every FCPA individual enforcement action has also been resolved without
a trial. If nothing else, the FCPA trials in 2009 demonstrate that when a FCPA
enforcement action is challenged, the DOJ is not infallible when enforcing the
FCPA, that its aggressive interpretations of the statute will not be universally
accepted, and that even judges remain fuzzy as to the dividing line between

aggressive business conduct and conduct that violates the FCPA.

D. Aggressive and Untested Enforcement Theories

Ordinarily, aggressive government enforcement ofa statute based on tenuous,

dubious, and in some cases untested legal theories invites judicial scrutiny in a
transparent, adversarial proceeding in which the government must meet its burden

of proof and establish that factual evidence exists to support the applicable legal

elements and in which valid and legitimate defenses are presented. Such judicial

1 14. See Press Release, Former Congressman William J. Jefferson Sentenced to 13 Years in

Prison for Bribery and Other Charges (Nov. 13, 2009), available at http://wwwjustice.

gov/opa/pr/2009/November/09-crm- 1231.html; The FCPA Blog, supra note 108.
1 15. For instance, in a November 2009 speech Breuer stated: "In the past few months, we

have the completed the trials ofthe Greens in California, ofMr. Bourke in New York and offormer
Congressman William Jefferson in Virginia. In each ofthese cases, individuals were found guilty

of FCPA violations and face jail time." Lanny A. Breuer, Assistant Att'y Gen., DOJ, Criminal
Division, 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/2009/1 1/11-1 2-09breuer-pharmaspeech.pdf.

116. Press Release, Film Executive and Spouse Found Guilty of Paying Bribes to a Senior

Thai Tourism Official to Obtain Lucrative Contracts (Sept. 14, 2009), available at http://www.

justice.gov/criminal/pr/press_releases/2009/09/09-14-09green-guily.pdf.

117. See id.

118. The FCPA Blog, http://fcpablog.com/blog/20 10/1/22/sentencing-respite-for-the-
greens.html (Jan. 21, 2010, 17:38).



410 INDIANA LAW REVIEW [Vol. 43:389

scrutiny is particularly appropriate when enforcement theories result in multi-
million dollar corporate fines and penalties, as is often the case in FCPA
enforcement actions.

But such judicial scrutiny is essentially non-existent in the FCPA context
given the frequency in which FCPA enforcement actions are resolved through
NPAS, DPAs, pleas, or SEC settlements. The result in many cases is that the
FCPA means what the enforcement agencies say it means. This feature of the
FCPA that distinguishes FCPA enforcement from nearly every other area of law,
and this feature was once again prominent during the 2009 FCPA enforcement
year.

1. "Foreign Official.
"—The lack ofjudicial scrutiny ofFCPA enforcement

actions is most troubling in connection with the enforcement agencies' aggressive

interpretation of the key "foreign official" element of an FCPA antibribery
violation. As described in Part I above, 119 the enforcement agencies'
interpretation of this element includes the theory that all employees (regardless

of title or position) of foreign SOEs, including SOE subsidiaries, are deemed
"foreign officials" under the FCPA on the theory that such entities are
"instrumentalities" of a foreign government.

The enforcement agencies' interpretation of the "foreign official" element is
just that, an interpretation, and it has never been accepted by a court. This

interpretation is no different than the DOJ or the SEC telling you that the person
you play softball with on Thursday nights is a U.S. "official" merely because he

or she works for General Motors or American International Group, Inc., given

that both companies are owned or controlled by the U.S. government.
This dubious interpretation is far from an academic issue-spotting exercise,

but is rather at the core of a majority of 2009 corporate FCPA enforcement
actions as demonstrated by the chart below which lists the enforcement actions

along with the alleged "foreign official(s)."

2009 Corporate FCPA Enforcement Actions—The "Foreign Officials"

Company "Foreign Official(s)"

Avery Dennison Corp.
120

Chinese foreign officials including: "Traffic Management

Research Institute under the Ministry of Public Security located

in Wuxi, Jiangsu Province;" "an official at Henan Luqiao, a state-

owned enterprise;" "a state-owned end user," Indonesian customs

and tax officials, and Pakistani customs officials.

119. See supra text accompanying notes 1 6-2 1

.

120. Complaint, supra note 49, fflf 2, 9, 13-14, 16-17.



2010] THE FOREIGN CORRUPT PRACTICES ACT 411

Control Components, Inc.
121

Alleged Vice President, Engineering Managers, General

Managers, Procurement Managers, and Purchasing Officers at

state-owned entities including, but were not limited to: "Jiangsu

Nuclear Power Corporation (China), Guohua Electric Power

(China), China Petroleum Materials and Equipment Corporation .

. . . PetroChina, Dongfang Electric Corporation (China), China

National Offshore Oil Company . . . Korea Hydro and Nuclear

Power . . . Petronas (Malaysia), and National Petroleum

Construction Company (United Arab Emirates) . . . ."

Helmerich & Payne Inc. 122 "Various officials and representatives of the Argentine and
Venezuelan customs services."

ITT Corp. 123 "Employees of numerous Chinese state-owned entities;" "thirty-

two different SOE customers;" "employees of Design Institutes

(some of which were SOEs) that assisted in the design of large

infrastructure projects in China."

KBR/Halliburton Co.
124

"High-level Nigerian government officials;" "Nigerian

government officials;" "The Nigerian National Petroleum

Corporation (NNPC) was a Nigerian government-owned

company charged with development of Nigeria's oil and gas

wealth and regulation of the country's oil and gas industry.

NNPC was a shareholder in certain joint ventures with

multinational oil companies. NNPC was an entity and

instrumentality of the Government of Nigeria . . ."; "Nigeria LNG

Limited (NLNG) was created by the Nigerian government . . .

and was the entity that awarded the related . . . contracts. The

largest shareholder ofNLNG was NNPC, which owned 49% of
NLNG. The other owners ofNLNG were multinational oil

companies. Through the NLNG board members appointed by
NNPC, among other means, the Nigerian government exercised

control over NLNG . . . NLNG was an entity and instrumentality

of the Government of Nigeria . . . ."

121

.

Criminal Information, supra note 50, % 5.

122. Helmerich & Payne, Inc., supra note 35, f 4.
123. Complaint, supra note 52, ffl| 1, 10.

124. Criminal Information, supra note 14, |f 10-14, 18; Complaint, supra note 53, fflj 10, 14,

24.



412 INDIANA LAW REVIEW [Vol. 43:389

Latin Node Inc. 125 "Hondutel, the Honduran government-owned

telecommunications company headquartered in Tegucigalpa,

Honduras, was an 'instrumentality' of the Honduran government,

and thus its employees and directors were 'foreign officials'

under the FCPA. . . . TeleYemen, the Yemeni government-owned

telecommunications company headquartered in Sana'a, Yemen,

was an 'instrumentality' of the Yemeni government, and thus its

employees and directors were 'foreign officials' under the

FCPA."

Nature's Sunshine Products,

Inc.
126

"Brazilian customs brokers."

United Industrial Corp.
127

"[A]ctive [Egyptian Air Force] officials."

UTStarcom, Inc.
128

"Government-controlled municipal and provincial

telecommunications companies's employees;" "employees of

Chinese government-controlled telecommunications companies;"

"managers and other employees of 9 government customers in

China;" "a Chinese-government-controlled telecommunications

company."

"A government-controlled telecommunications company in

Thailand;"

"One Mongolian government official to help UTSI obtain a

favorable ruling in a dispute over its license."

As demonstrated by the above chart, the enforcement agencies' interpretation
of the key "foreign official" element of an FCPA antibribery violation to include
SOE employees was at the core of 66% (six out of nine) of the 2009 FCPA
enforcement actions against business entities. Further, because many of the
above enforcement actions (most notably Control Components Inc.) resulted in
several related actions against employees where the "foreign officials" were the

exact same,
129

the impact ofthis tenuous and dubious legal interpretation extends

far beyond just the enforcement actions profiled above.

The most aggressive application of the enforcement agencies "foreign
official" interpretation was in the KBR / Halliburton enforcement action in which
the enforcement agencies alleged that officers and employees of Nigeria LNG
Limited were "foreign officials" despite the fact that NLNG is owned 51% by a

125. Criminal Information, supra note 54, fflj 6, 11.

1 26. Complaint, supra note 35,^6.

127. In re United Indus. Corp., Exchange Release No. 60005 (May 29, 2009), available at

http://www.sec.gov/litigation/admin/2009/34-60005.pdf.

128. Complaint, supra note 15.

129. See supra note 121 and accompanying text.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 4 1

3

consortium of private multinational oil companies—Shell, Total, and Eni. 130 In
other words, even if an entity is undeniably majority owned by private
companies, the enforcement agencies will not retreat from its tenuous and

dubious legal interpretation that employees of that entity are "foreign officials"

under the FCPA.
DOJ officials have publicly acknowledged that there can be difficult

assessments of who qualifies as a "foreign official" under the FCPA. 131 Despite
this difficult assessment and despite the lack ofany FCPA case law to support its
position, the enforcement agencies continue to aggressively interpret the "foreign

official" element and have steadfastly refused to provide useful guidance on this

issue to those subject to the FCPA. 132 For instance, in a November 2009 speech
(before a pharmaceutical industry audience—an industry which has become
subject to much FCPA scrutiny based on the interpretation), Breuer said:

consider the possible range of "foreign officials" who are covered by the
FCPA: Some are obvious, like health ministry and customs officials of
other countries. But some others may not be, such as the doctors,
pharmacists, lab technicians and other health professionals who are
employed by state-owned facilities. Indeed, it is entirely possible, under

certain circumstances and in certain countries, that nearly every aspect

ofthe 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. 133

Even if the enforcement agencies' aggressive "foreign official" interpretation
were to be upheld by a court, those subject to the FCPA could certainly benefit
from some clarity as to the factors the enforcement agencies consider when
analyzing whether a commercial enterprise (often times a company with publicly
traded stock and other attributes of private business) is an SOE.

Instead, in many cases the charging documents contain little more than mere
conclusory legal statements as to the key "foreign official" element. For instance,

the SEC's complaint against Oscar Meza, a former employee of Faro

Technologies, Inc., charging FCPA anti-bribery violations, is silent as to any
factual evidence supporting the theory that employees of unidentified "Chinese

state-owned companies" are "foreign officials."
134

Similarly, in the above-

profiled Control Components Inc. action, it is unclear what attributes of the

identified entities, such as Petronas (located in Malaysia), made them an
"instrumentality" of a foreign government in the eyes of the enforcement

1 30. See The Company—Nigeria LNG, http://www.nlng.com/NR/exeres/F48DE9A7-F3F3-
4A8E-929A-0C34FlCFF92B%2Cframeless.htm (last visited Mar. 9, 2010).

131. See Wrage Blog, http://wrageblog.org/2009/09/17/the-latest-fcpa-forecast-from-u-s-

regulators/ (Sept. 17,2009, 14:26).

132. Breuer, supra note 115.

133. Id.

134. See Complaint U 1, SEC v. Oscar H. Meza, No. l:09-cv-01648 (D.D.C. Aug. 28, 2009),
available at http://www.sec.gov/litigation/complaints/2009/comp21 190.pdf.



414 INDIANA LAW REVIEW [Vol. 43:389

agencies.
135

It remains an open question also whether the enforcement agencies conduct

any meaningful investigation before making the significant legal conclusion that

a seemingly commercial enterprise is nevertheless an "instrumentality" of a

foreign government. For instance, Petronas is "a fully-integrated oil and gas

corporation, ranked among Fortune Global 500' s largest corporations in the
world"; it has four subsidiaries listed on a stock exchange; and it has ventured

globally into more than thirty-two countries worldwide in its aspiration to be "a
[l]eading [o]il and [g]as [multinational of [c]hoice."

136 Would a court conclude
that such a profit seeking enterprise, one of the largest in the world, and one that

does business all over the world is truly an instrumentality of the Malaysian

government?

Why has no one challenged this interpretation of the key "foreign official"
element (the foundation on which a significant number of FCPA enforcement
actions is based)? Simply put, businesses are not in the business of setting legal

precedent and to challenge this interpretation would first require a business to be
criminally indicted—something no board of director member is going to allow
to happen in this post-Arthur Anderson world—regardless of the ultimate
criminal fine or penalty the DOJ is seeking. 137

Thus, this interpretation continues even though it is beyond ripe for

challenge. With foreign government owned sovereign wealth funds making
investments around the world (including in U.S. companies)

138
and with SOEs

listing public shares on various exchanges and otherwise doing business around

the world, there has never been a more critical time for the enforcement agencies

to make clear its legal reasoning and support for its tenuous and dubious legal
theory. Before another company or individual is subject to an FCPA enforcement
based on this tenuous and dubious legal theory, there should be at least be some
judicial acceptance of this theory.

2. "Control Person " Liability.—The 2009 FCPA enforcement year also saw
the SEC push the outer limits of FCPA liability. In the Nature's Sunshine
Products (NSP) enforcement action, the SEC also charged company executives
Douglas Faggioli and Craig Huff.

139
The settled complaint alleges that Faggioli

and Huff, as "control persons" ofNSP, violated the FCPA books and records and
internal control provisions.

140
In language that is sure to induce a cold sweat in

135. See supra note 1 2 1 and accompanying text.

136. About Petronas, www.petronas.com.my/about_US.aspx (last visited Mar. 26, 2010).

137. See, e.g. , Winer & Husisian, supra note 37, at 1 ("Even ifthe government's application
of the anti-bribery provisions of the FCPA is excessively aggressive, no company or individual
wants to have to test the government's application in court.").

138. See, e.g. , Dinny McMahon, China Gives Glimpse ofU.S. Holdings, WALL St. J., Feb. 9,
2010, at CI (noting that stated-owned China Investment Corp. has a combined $9.63 billion in

equity stakes in various U.S. companies including American International Group, Inc., Apple Inc.,

and News Corp.).

139. Complaint, supra note 35.

140. Id. fl 43-48, 69.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 4 1

5

any executive, the SEC generally alleged that both Faggioli and Huff had
"supervisory responsibilities" over NSP's senior management and policies. Yet
as "control persons," the SEC alleged that Faggioli and Huff "failed to make and
keep books, records and accounts, which in reasonable detail, accurately and

fairly reflected the transactions of NSP" and that they failed to devise and
maintain an adequate system of internal accounting controls.

141

Although the SEC has in past FCPA enforcement actions charged business
executives under other indirect theories ofliability,

142
the charges against Faggioli

and Huff are the first time the SEC has used a "control person" theory of liability
in an FCPA enforcement action. Phillip Urofsky, a former DOJ attorney
responsible for prosecuting FCPA cases currently in private practice, noted that
the NSP case is the "first FCPA action in which the SEC has charged individuals
under the Exchange Act's control liability theory."

143 He also noted that this case
departed from the SEC's prior practice in that previous SEC FCPA cases included
"direct allegations that the individuals . . . charged were involved in the action,

in creating the false books and records or creating controls or authorizing

payment of the bribes."
144

Urofsky calls the SEC's invocation of control person
liability in the FCPA context "unique and unprecedented." 145 As demonstrated
by the NSP enforcement action, the FCPA enforcement trend is clearly greater
scrutiny of business executives and a greater SEC expectation that executives
play a meaningful role in ensuring enterprise-wide FCPA compliance.

III. The Road Ahead for the Foreign Corrupt Practices Act

As the FCPA enters a new decade, the Obama Department of Justice is
expected to keep FCPA enforcement a top priority. Not only is the United States
expected to ramp-up enforcement ofthe FCPA, but other countries, most notably
the United Kingdom, are also expected to ramp-up enforcement ofanti-corruption

laws as well.
146

This Section ends with a discussion of two bills currently in the

U.S. Congress that could affect FCPA compliance and enforcement in the new
decade.

A. Enforcement Priority Remains High

FCPA prosecution is expected to remain a top priority in the Obama
administration and thus a prominent feature on the legal landscape throughout

this decade. Both Attorney General Holder and Assistant Attorney General

141. A/.ffif 67-69.

1 42. SeeFCPA Professor, http://fcpaprofessor.blogspot.com/2009/08/more-on-control-person-
and-similar.html (Aug. 25, 2009, 15:42).

1 43

.

Amanda Bronstad, SEC Trots Out a New Weapon: Control Person Liability, Nat'l L.J.,
Aug. 20, 2009, ava//a^/e^http://www.law.conVjsp/nlj/PubArticleNLJ.jsp?id=1202433157801&

hbxlogin=l.

144. Id.

145. Id.

146. See infra notes 150-53 and accompanying text.



416 INDIANA LAW REVIEW [Vol. 43:389

Breuer come from a white collar defense background and have familiarity with
the statute. The DOJ's increased focus on the FCPA has been documented over
the past few years. In his November 2009 speech, Breuer noted that the DOJ
"will continue to focus [its] attention on areas and on industries where we can
have the biggest impact in reducing foreign corruption."

147
Breuer noted that the

FCPA-specific FBI squad "has been growing in size and in expertise over the past
two years." He announced that the DOJ has "begun discussions with the Internal
Revenue Service's Criminal Investigation Division about partnering with [the

DOJ] on FCPA cases" as well as "pursuing strategic partnerships with certain
U.S. Attorney's Offices throughout the United States where there are a

concentration of FCPA investigations." 148

The SEC has also ramped up its FCPA resources. In August 2009, Robert
Khuzami (the SEC's Director of the Division of Enforcement), announced that
the SEC will be creating a specialized FCPA unit. Khuzami said:

The Foreign Corrupt Practices Act unit will focus on new and proactive
approaches to identifying violations ofthe 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.

149

B. Increased International Enforcement

The past year also saw an enforcement ramp up of anti-corruption laws
around the globe, including most notably in the United Kingdom. In July 2009,
the U.K. Serious Fraud Office (SFO) (an enforcement agency similar to the DOJ)
announced the first prosecution brought in the United Kingdom against a
company for overseas corruption as it charged Mabey & Johnson Ltd. with
making improper payments to secure public contracts in Jamaica and Ghana as
well as in connection with the Iraqi Oil-For-Food program.

150
In October 2009,

Halliburton announced that the SFO is conducting an inquiry into M.W. Kellogg
Company (a U.K. joint venture owned by a Halliburton affiliate) related to the
same Nigeria scheme at issue in the record-setting FCPA enforcement action. 151

147. Breuer, supra note 82.

148. Id.

149. Robert Khuzami, Director, Div. of Enforcement, SEC, 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

150. See Press Release, Mabey & Johnson Ltd Prosecuted by the SFO (July 10, 2009),
available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases-2009/mabey~

johnson-ltd-prosecuted-by-the-sfo.aspx.

151. See Halliburton Co., Transition Report Pursuant to Section 1 3 or 1 5(d) ofthe Securities

Exchange Act of 1934, Form 10-Q, Comm'n File No. 001-03492, at 10 (Sept. 30, 2009), available

at http://ir.halliburton.com/phoenix.zhtml?c=67605&p=irol-secText&TEXT=aHR0cDovL2Nj



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 4 1

7

Such parallel or "tag-along" enforcement actions in other jurisdictions as to the

same core conduct at issue in a U.S. FCPA prosecution is expected to become a
new norm in this decade.

Also relevant to the U.K.'s enforcement ramp up is a new Bribery Bill
expected this year.

152
In anticipation of this new law, in July 2009 the SFO

released a memo titled "Approach of the Serious Fraud Office to Dealing with
Overseas Corruption" in which the SFO announced that it will be using "all ofthe
tools at [its] disposal in identifying and prosecuting cases of corruption" as well

as adopting investigative strategies similar to the DOJ.
153

Other global anti-corruption developments in 2009 include the announcement

by Canadian authorities ofa "special unit" dedicated to investigating international

bribery and enforcing its FCPA-like statute (the Corruption of Public Officials

Act)
154

as well as the Securency International investigation in Australia which

could result in that country's first prosecution ofa company for foreign bribery. 155

C. Legislative Activity

Congress enacted the FCPA in 1977 and amended it in 1988 and 1998. 156

Given this approximate ten-year cycle, the statue would seem primed for a tune-
up and the current year may see some U.S. legislative activity, as two bills
currently in Congress could impact FCPA compliance and enforcement.

1. The Energy Security Through Transparency Act.—In September 2009,
"The Energy Security Through Transparency Act" (S-1700) was introduced and
it seeks to amend section 1 3 of the Securities Exchange Act by adding a new
section "Disclosure of Payment by Resource Extraction Issuers."

157

Bribery and corruption are bad; however, that does not mean that every
attempt to curtail bribery and corruption is good. Although perhaps a well-

intentioned bill, S. 1700 is, as described below, so broad that it would essentially
require "Resource Extraction Issuers" to disclose any payments made to just

Ym4uMTBrd216YXJkLmNvbS94bWwvZmlsaW5nLnhtbD9yZXBvPXRlbmsmaXBhZ2U9NjU

2NDMzMCZkb2M9MQ%3d%3d.
152. See, e.g., Bribery Bill, 2009-10, H.L. Bill [69] (U.K.), available at http://services.

parliament.uk/bills/2009- 1 0/bribery.html.

153. Approach ofthe Serious Fraud Office to Dealing with Overseas Corruption, available at

http://www.sfo.gov.uk/media/283 1 3/approach ofthe SFO to dealing with overseas corruption.pdf.
1 54. See Mark Morrison et al., Canada 's Corruption ofForeign Public Officials Act: What

You Need to Know and Why, BLAKES Bull.: WHITE COLLAR CRIME, Sept. 2009, at 1, available

at http://www.blakes.com/english/legal_updates/white_collar_crime/sept_2009/CFPOA.pdf.

155. Richard Baker & Nick McKenzie, When the Buck Stops at the Top, Age (MELBOURNE),
Nov. 28, 2009, available at http://www.theage.com.au/national/when-the-buck-stops-at-the-top-

20091127-jxll.html.

1 56. Legislative History, http://www.justice.gov/criminal/fraud/fcpa/history (last visited Mar.

9, 2010).

157. See Energy Security Through Transparency Act of 2009, S. 1700, 1 1 1th Cong. sec. 6

(2009), available at http://www.govtrack.us/congress/bill.xpd?bill=sl 1 1-1 700 (follow "full text"

hyperlink).



418 INDIANA LAW REVIEW [Vol. 43:389

about anybody in connection with the "commercial development of oil, natural

gas, or minerals"—including perfectly legitimate and legal payments.
Under this proposed act, the SEC shall issue final rules that would require:

• a "Resource Extraction Issuer"(a defined term which means an issuer that: "(i)
is required to file an annual report with the Commission; and (ii) engages in the

commercial development of oil, natural gas, or minerals");
• to include in its annual report;

• "information relating to any payment";
• made by the issuer, "a subsidiary or partner" of the issuer, "or an entity under
the control of the issuer";

• to a "foreign government" (a defined term which means a "foreign government,
an officer or employee of a foreign government, an agent of a foreign

government, a company owned by a foreign government, or a person who will
provide a personal benefit to an officer of a government if that person receives a

payment, as determined by the [SEC]");
• for "the purpose of the commercial development of oil, natural gas, or

minerals."
158

The final rules to be issued by the SEC would require that the annual report
include: "(i) the type and total amount of such payments made for each project"
of the issuer "relating to the commercial development of oil, natural gas, or

minerals; and (ii) the type and total amount of such payments made to each
foreign government."

159
Thereafter, the Act requires that "to the extent

practicable, the [SEC] shall make available online, to the public, a compilation
of the information required to be submitted" under the above rules.

160

Under the act, a "Resource Extraction Issuer" is defined to mean an issuer
that "engages in the commercial development of oil, natural gas, or minerals."

161

The term "commercial development of oil, natural gas, or minerals" in turn
"includes the acquisition ofa license, exploration, extraction, processing, export,

and other significant actions relating to oil, natural gas, or minerals, as determined

by the [SEC]."
162

A significant question posed by these broad definitions, among others, is
whether selling equipment to a core resource extraction company, which is then

used to explore for oil, natural gas, or minerals a "significant action relating to

oil, natural gas, or minerals?" Or is selling exploration software to a core
resource extraction company, which is then used to explore for oil, natural gas,

or minerals a "significant action relating to oil, natural gas, or minerals?"

Further, under the act, the term payment: "(i) means a payment that is (I)
made to further the commercial development of oil, natural gas, or minerals; and
(II) not de minimis; and (ii) includes taxes, royalties, fees, licenses, production

entitlements, bonuses, and other material benefits, as determined by the

158. Id. sec. 6(m)(l)-(2).

159. Id. sec. 6(m)(2)(A).

160. Id. sec. 6(m)(3)(A).

161. Msec. 6(m)(l)(D)(ii)

162. Id sec. 6(m)(l)(A).



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 4 1

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[SEC]."
163

Ignoring the imperfect and imprecise definition of "Resource Extraction

Issuer," it is one thing to require such issuers to disclose royalties paid to a

foreign government. But the act seeks disclosure and reporting of much more.
The act could conceivably require disclosure of every single dollar a "Resource

Extraction Issuer" pays to anybody in connection with the "commercial

development of oil, natural gas, or minerals" if the money ultimately makes its
way to a foreign government, an officer or employee of a foreign government, a
company owed by a foreign government, or any person who will provide a
personal benefit to an officer of a government.

Further problematic is the fact that S-1700 does not contain a knowledge

requirement. Thus, a "Resource Extraction Issuer" will have a disclosure

obligation if it makes a payment to any person, who then unbeknownst to the
"Resource Extraction Issuer," makes a payment to a person "who will provide a
personal benefit to an officer of a government."

164

Not only is S-1700 incredibly broad and in many cases unintelligible, but it
also seeks to impose disclosure obligations on issuers (at least Resource

Extractions issuer) that Congress considered and rejected when it enacted the
FCPA. For instance, the original versions of what became the "FCPA" (i.e. the
"Foreign Payments Disclosure Act" and other similar bills) started out with

disclosure provisions, including provisions requiring all U.S. companies to

disclose all payments over $ 1 ,000 to any foreign agent or consultant and any and

all other payments made in connection with foreign government business.
165 As

to these proposed disclosure provisions, many lawmakers, including most notably
Senator Proxmire (a Democrat from Wisconsin and a congressional leader on the

FCPA issue), were concerned that the disclosure obligations were too vague to
enforce and would require the disclosure of thousands of payments that were

perfectly legal and legitimate. Proxmire said during congressional hearings: "I

would think [the corporations subject to the disclosure requirements] would want

some certainty. They want to know what they have to report and what they don't
have to report. They don't want to guess and then find themselves in deep trouble

because they guess wrong."
166

The final House report on what would become the "FCPA" is even more
emphatic in rejecting a disclosure regime contemplated by S-1700. The report

states (when discussing the various disclosure provisions previously debated, but

rejected):

Most disclosure proposals would require U.S. corporations doing

business abroad to report all foreign payments including perfectly legal

payments such as for promotional purposes and for sales commissions.

163. Id. sec. 6(m)(l)(C)(i)-(ii).

164. Id. sec. 6(m)(l)(B).

165. Prohibited Bribes to Foreign Officials: Hearing on S. 3133, 3379, & 3418 Before the
Committee on Banking, Housing and Urban Affairs, 94th Cong. 13 (1976) (statement of William

Proxmire, Committee Chairman, Committee on Banking, Housing and Urban Affairs).

166. Id



420 INDIANA LAW REVIEW [Vol. 43:389

A disclosure scheme, unlike outright prohibition, would require U.S.
corporations to contend not only with an additional bureaucratic overlay

but also with massive paperwork requirements.
167

2. The Foreign Business Bribery Prohibition Act.—The other bill currently
in Congress is H.R. 2152 ("The Foreign Business Bribery Prohibition Act") and

it could be a game-changer in terms of creating the much-needed FCPA case law
to define the statute's contours.

168
At present, there is no private right of action

under the FCPA. Enforcement of the law is solely in the hands of the DOJ and
SEC.

169 The act, introduced in April 2009, seeks to amend the FCPA by creating
a private right of action for any U.S. company that can prove it lost business
because a "foreign concern" gained that same business by violating the FCPA.

170

Under the act, a plaintiffwould need to prove that: (i) the "foreign concern"
violated the FCPA's anti-bribery provisions; and (ii) the violation prevented the
plaintiff from obtaining or retaining business and assisted the foreign concern in

obtaining or retaining business.
171

In other words, if a U.S. company can prove
that it lost business because a "foreign concern" gained that same business by

violating the FCPA, the U.S. company could bring a lawsuit seeking damages.
Under the proposed act, the damages would be the higher of the total amount of
the contract or agreement that the "foreign concern" gained in obtaining or

retaining the business or the total amount of the contract or agreement that the

plaintiff failed to gain.
172

The act also allows treble damages along with
attorneys' fees and costs.

173

With increased media scrutiny on the business practices of foreign

companies, including allegations that certain companies have been able to obtain

or retain business by making bribe payments,
174

the act could provide U.S.

companies a legal avenue to recover for such lost business.

The act also has the potential to change FCPA enforcement by creating an
avenue for much needed judicial scrutiny of the FCPA's elements. Because a
private plaintiff will have to prove the same elements enforcement agencies have

to establish to initiate an FCPA enforcement action, and because a private
plaintiff would not carry the "big stick" the enforcement agencies carry, FCPA

167. H.R. REP., supra note 17, at 3.

168. See Foreign Business Bribery Prohibition Act of2009, H.R. 2152, 1 1 1th Cong. (2009),

available at http://www.govtrack.us/congress/bill.xpd?bill=hl 11-2152 (follow "full text"

hyperlink).

169. See Lamb v. Philip Morris, Inc., 915 F.2d 1024, 1029-30 (6th Cir. 1990).

170. See H.R. 2152, sec. 2(f)(1).

171. See id.

172. See id. sec. 2(f)(3).

173. See id. sec. 2(f)(3)(b).

1 74. See Sharon LaFraniere & John Grobler, China Spreads Aid in Africa, with a Catch, N.Y.
TIMES, Sept. 21, 2009, at Al, available at http://www.nytimes.com/2009/09/22AVorld/Africa/

22nambia.html; see also Joshua Partlow, Afghan Minister Accused ofTaking Bribe, WASH. POST,

Nov. 18, 2009, available at http://www.washingtonpost.eom/wp-dyn/content/article/2009/l 1/17/

AR20091 1 1704198_pf.html.



20 1 0] THE FOREIGN CORRUPT PRACTICES ACT 42

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case law, as opposed to merely FCPA resolutions via NPAs or DPAs, surely
seems likely if Congress enacts H.R. 2152. Thus, if Congress enacts H.R. 2152,

it could inject a plaintiffs component into the FCPA bar, and result in much
needed substantive FCPA case law. 175

175. See United States v. Kozeny, 493 F. Supp. 2d 693, 697 (S.D.N.Y. 2007) (noting the

"surprisingly few decisions throughout the country on the FCPA over the course of the last thirty
years").