Controlling the Prosecution of Bribery: Applying Corporate Law Principles to Define a "Foreign Official" in the Foreign Corrupt Practices Act

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Abstract:

This Comment focuses on the debate surrounding the definition of an "instrumentality" within the Foreign Corrupt Practice Act's (FCPA) "foreign official" provision. The FCPA prohibits bribery of "foreign officials" but provides little guidance as to the types of entities included within the meaning of an "instrumentality." The Department of Justice construes this term broadly and therefore can aggressively prosecute alleged corruption. This Comment argues that courts should provide guidance on the definition of a "foreign official" within the meaning of the FCPA by applying principles of control drawn from corporate law. Such guidance would accomplish three important tasks. First, it would help corporations comply with the FCPA. Second, it would align with the approach used by foreign jurisdictions designated in treaty obligations. Finally, it could help achieve Congress's original objectives in enacting the legislation: namely, to prevent corruption of foreign public officials as well as the negative consequences for foreign policy.

INTRODUCTION

In the wake of the Watergate scandal, federal investigations uncovered illicit practices in both government and private business, including unreported campaign contributions and "questionable" and "illegal"1 payments to domestic and foreign political officials.2 The Securities Exchange Commission (SEC) began investigating these payments and discovered that approximately 400 U.S. corporations had made over $300 million in bribes to foreign public officials in order to secure business.3 In 1977, Congress responded by enacting the Foreign Corrupt Practices Act (FCPA)4 to criminalize bribery and improve the U.S. corporate image abroad.5 Congress noted the "severe foreign policy problems" these bribes created for the U.S., and intended for the FCPA to prevent U.S. businesses from engaging in bribery, as this would have negative implications for the image of the United States abroad.6 Congress sought to restore public confidence in American corporate practice.7 The primary evil that Congress sought to address with the FCPA was improper payments to foreign government officials, which "invariably tend[] to embarrass friendly governments, lower the esteem for the United States among citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations."8

The FCPA had a slow start.9 During the first quarter century of the FCPA's existence, the SEC and Department of Justice (DOT), jointly responsible for enforcing the FCPA,10 initiated only two or three cases per year." Fines tended to remain below $1, 000,000. 12 However, after an initial twenty years of relative dormancy, enforcement surged.13 Over the past ten years, the DOJ and SEC have greatly increased the number of enforcement actions and the severity of fines assessed.14 In 2010, for example, the DOJ and the SEC initiated a record of forty-eight and twenty-six cases respectively.15 This trend shows no sign of abating, and the DOJ recently confirmed its intent to "vigorously enforce" the FCPA.16 In November 2009, Assistant Attorney General Lanny Breuer remarked that the "past year was probably the most dynamic single year in the more than 30 years since the FCPA was enacted" and promised to continue "the upward trend in FCPA enforcement."17

While DOJ officials commend the surge in investigations and prosecutions, the reaction in the corporate world has been less enthusiastic. Of particular concern to directors and officers of corporations doing business abroad is the rise of prosecution of individuals.18 According to Mark Mendelsohn, Deputy Chief of the Fraud Division at the DOJ, the rise in individual prosecutions is "not an accident."19 Rather, the trend reflects the Department's policy of deterring bribery by holding individuals personally accountable.20 The sanctions resulting from these enforcement actions have also risen dramatically. …