The DOJ recently issued FCPA Opinion Procedure Release No. 10-03 (see here).
As I discuss in this post, the disclosed facts suggest a broad range of potential issues, but the DOJ's analysis is strangely narrow and would appear to contain a key acknowledgment (in contrast to prior opinion procedure releases) that local law does indeed matter when determining who is a "foreign official" under the FCPA.
The disclosed facts are as follows.
The "Requestor" is a "limited partnership established under U.S. law," "headquartered in the U.S.," and "engaged in development of natural resources trading and infrastructure."
As described in the release:
"The Requestor is pursuing an initiative with a foreign government regarding a novel approach to particular natural resource infrastructure development. Because the approach is relatively novel and the market is dominated by a consortium of established companies, the Requestor determined that it required assistance in entering into discussions with the foreign government."
The solution?
According to the release, the Requestor plans to contract with a consultant (a U.S. partnership whose sole owner is a U.S. citizen) who just so happens to have "extensive contacts in the business community and the government in the foreign country" and who "previously and currently holds contracts to represent the foreign government and act on its behalf, including performing marketing on behalf of the Ministry of Finance, and lobbying efforts in the U.S."
In other words, to get things done in the foreign country, the Requestor would like to turn to someone who knows how to get things done in the foreign country and indeed someone who appears to have a track record of getting things done for the foreign government itself as the consultant is a "registered agent of the foreign government" and has "represented ministries of the foreign government that will play a role in the discussions of the Requestor's initiative."
Sounds like plenty of red flags.
In addition, according to the release, "the Consultant will be paid a signing bonus by the Requestor at the time the consulting contract is signed." Further, the release notes that the "bulk of any payment by the Requestor to the Consultant under the contract will come in the form of success fees, should the Consultant's efforts result in the foreign government entering into a business relationship with the Requestor."
Ordinarily, the DOJ views third-party success fees in connection with foreign government business with a high-degree of suspicion.
But not so when it comes to the Requestor's proposed consultant.
The release contains several "safeguards" the Requestor put in place to "ensure that no conflict of interest would arise between the Consultant's representation of the Requestor and the Consultant's separate and unrelated representation of the foreign government."
Most FCPA enforcement actions involve allegations that a company paid something of value - such as a success fee - to a third-party, such as a consultant, who then provides a portion of the money to a "foreign official" in violation of the FCPA.
The analysis is often whether the company provided the thing of value to the third-party under circumstances that suggest the company was "aware of a high probability" that the thing of value would be passed along to the "foreign official."
Although the Requestor's disclosed facts do not suggest a perfect analogy, it is interesting to note that the DOJ's analysis is not focused on the broad range of potential issues suggested by the disclosed facts.
Rather, in the words of the DOJ, "its opinion is limited to the narrow question of whether the Consultant would be a 'foreign official' for purposes of the payments under the consulting contract."
On this issue, the DOJ stated that because the Consultant is ordinarily "an agent of the foreign government" the Consultant and its employees could be "foreign officials" for purposes of the FCPA "in certain circumstances."
However, the DOJ was "satisfied that for purposes of the contract with the Requestor" the Consultant will "not be acting on behalf of the foreign government" and that therefore the Consultant is not a "foreign official."
In its "foreign official" analysis, the DOJ cites local law - a reference to the Requestors disclosure that: "[a]s a matter of law local, the Consultant and its employees are not employees or otherwise officials of the foreign government, and the Requestor has secured a local law opinion that it is permissible for the Consultant to represent both the foreign government and the Requestor at the same time."
The DOJ's apparent acknowledgment that local law is indeed relevant in determining who is a "foreign official" under the FCPA is encouraging - even though it stands in contrast to the DOJ's prior statements in opinion procedure releases.
For instance, in Opinion Procedure Release No. 94-01 (see here) the DOJ opined 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 local law opinion that the individual would not be regarded as either a government employee or a public official in the foreign country.
Similarly, in Opinion Procedure Release No. 08-01 (see here) the DOJ opined that the "Foreign Private Company Owner" at issue was a "foreign official" for purposes of the FCPA notwithstanding the fact that other government officials in the country at issue concluded that the relevant privatization regulations did not apply to the "Foreign Private Company Owner" because he was not a government official for purposes of the regulations.
Even though the DOJ's analysis in Opinion Procedure Release 10-03 is limited to the narrow question of whether the Consultant "would be a 'foreign official' for purposes of the payments under the consulting contract" it does seem to recognize that Requestor's proposed relationship with the Consultant could perhaps pose some problems.
The substance of DOJ's analysis ends as follows:
"The Department does not opine on any other aspect of the proposed contract or any other prospective conduct involved in the Request. Indeed, while the Consultant is not a foreign official for FCPA purposes under the limited facts and circumstances described by the Requestor, the proposed relationship increases the risk of potential FCPA violations. This opinion does not foreclose the Department from taking enforcement action should an FCPA violation occur during the execution of the consultancy."
Requestors are usually able to gain some level of comfort from a DOJ "no enforcement action" opinion in an FCPA Opinion Procedure Release. However, given this last paragraph, the Requestor in Opinion Procedure Release 10-03 may still have some sleepless nights ahead.
*****
As to an oft heard criticism of the FCPA Opinion Procedure Release system - that it takes too long and thus is of little value in a world where business decisions must be made in days or weeks, not months - the release notes that materials were submitted by the Requestor on March 9th, supplemental materials were submitted by the Requestor on August 2nd, and the DOJ release was issued on September 1st.
As I discuss in this post, the disclosed facts suggest a broad range of potential issues, but the DOJ's analysis is strangely narrow and would appear to contain a key acknowledgment (in contrast to prior opinion procedure releases) that local law does indeed matter when determining who is a "foreign official" under the FCPA.
The disclosed facts are as follows.
The "Requestor" is a "limited partnership established under U.S. law," "headquartered in the U.S.," and "engaged in development of natural resources trading and infrastructure."
As described in the release:
"The Requestor is pursuing an initiative with a foreign government regarding a novel approach to particular natural resource infrastructure development. Because the approach is relatively novel and the market is dominated by a consortium of established companies, the Requestor determined that it required assistance in entering into discussions with the foreign government."
The solution?
According to the release, the Requestor plans to contract with a consultant (a U.S. partnership whose sole owner is a U.S. citizen) who just so happens to have "extensive contacts in the business community and the government in the foreign country" and who "previously and currently holds contracts to represent the foreign government and act on its behalf, including performing marketing on behalf of the Ministry of Finance, and lobbying efforts in the U.S."
In other words, to get things done in the foreign country, the Requestor would like to turn to someone who knows how to get things done in the foreign country and indeed someone who appears to have a track record of getting things done for the foreign government itself as the consultant is a "registered agent of the foreign government" and has "represented ministries of the foreign government that will play a role in the discussions of the Requestor's initiative."
Sounds like plenty of red flags.
In addition, according to the release, "the Consultant will be paid a signing bonus by the Requestor at the time the consulting contract is signed." Further, the release notes that the "bulk of any payment by the Requestor to the Consultant under the contract will come in the form of success fees, should the Consultant's efforts result in the foreign government entering into a business relationship with the Requestor."
Ordinarily, the DOJ views third-party success fees in connection with foreign government business with a high-degree of suspicion.
But not so when it comes to the Requestor's proposed consultant.
The release contains several "safeguards" the Requestor put in place to "ensure that no conflict of interest would arise between the Consultant's representation of the Requestor and the Consultant's separate and unrelated representation of the foreign government."
Most FCPA enforcement actions involve allegations that a company paid something of value - such as a success fee - to a third-party, such as a consultant, who then provides a portion of the money to a "foreign official" in violation of the FCPA.
The analysis is often whether the company provided the thing of value to the third-party under circumstances that suggest the company was "aware of a high probability" that the thing of value would be passed along to the "foreign official."
Although the Requestor's disclosed facts do not suggest a perfect analogy, it is interesting to note that the DOJ's analysis is not focused on the broad range of potential issues suggested by the disclosed facts.
Rather, in the words of the DOJ, "its opinion is limited to the narrow question of whether the Consultant would be a 'foreign official' for purposes of the payments under the consulting contract."
On this issue, the DOJ stated that because the Consultant is ordinarily "an agent of the foreign government" the Consultant and its employees could be "foreign officials" for purposes of the FCPA "in certain circumstances."
However, the DOJ was "satisfied that for purposes of the contract with the Requestor" the Consultant will "not be acting on behalf of the foreign government" and that therefore the Consultant is not a "foreign official."
In its "foreign official" analysis, the DOJ cites local law - a reference to the Requestors disclosure that: "[a]s a matter of law local, the Consultant and its employees are not employees or otherwise officials of the foreign government, and the Requestor has secured a local law opinion that it is permissible for the Consultant to represent both the foreign government and the Requestor at the same time."
The DOJ's apparent acknowledgment that local law is indeed relevant in determining who is a "foreign official" under the FCPA is encouraging - even though it stands in contrast to the DOJ's prior statements in opinion procedure releases.
For instance, in Opinion Procedure Release No. 94-01 (see here) the DOJ opined 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 local law opinion that the individual would not be regarded as either a government employee or a public official in the foreign country.
Similarly, in Opinion Procedure Release No. 08-01 (see here) the DOJ opined that the "Foreign Private Company Owner" at issue was a "foreign official" for purposes of the FCPA notwithstanding the fact that other government officials in the country at issue concluded that the relevant privatization regulations did not apply to the "Foreign Private Company Owner" because he was not a government official for purposes of the regulations.
Even though the DOJ's analysis in Opinion Procedure Release 10-03 is limited to the narrow question of whether the Consultant "would be a 'foreign official' for purposes of the payments under the consulting contract" it does seem to recognize that Requestor's proposed relationship with the Consultant could perhaps pose some problems.
The substance of DOJ's analysis ends as follows:
"The Department does not opine on any other aspect of the proposed contract or any other prospective conduct involved in the Request. Indeed, while the Consultant is not a foreign official for FCPA purposes under the limited facts and circumstances described by the Requestor, the proposed relationship increases the risk of potential FCPA violations. This opinion does not foreclose the Department from taking enforcement action should an FCPA violation occur during the execution of the consultancy."
Requestors are usually able to gain some level of comfort from a DOJ "no enforcement action" opinion in an FCPA Opinion Procedure Release. However, given this last paragraph, the Requestor in Opinion Procedure Release 10-03 may still have some sleepless nights ahead.
*****
As to an oft heard criticism of the FCPA Opinion Procedure Release system - that it takes too long and thus is of little value in a world where business decisions must be made in days or weeks, not months - the release notes that materials were submitted by the Requestor on March 9th, supplemental materials were submitted by the Requestor on August 2nd, and the DOJ release was issued on September 1st.
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