Usually when FCPA lawyers talk about state-owned or controlled enterprises (SOEs), like many state power utilities, public hospitals, or national oil companies, they discuss them in the context of whether or not they constitute government instrumentalities for purposes of improper payments. In fact, SOEs can present much more complicated issues than this. In some ways, they might be just like your own (non-government owned) company. And this can have significant implications for FCPA compliance.
To be sure, determinations of state instrumentality are no doubt important. If the company is an instrument of the state, its officials are “foreign officials” for purposes of the FCPA. Improper payments to them create liability. Compliance programs must focus on a company’s dealings with them. A number of courts in the United States have concluded that the status determination of instrumentality is a fact-specific analysis that considers a wide variety of issues like the state’s level of ownership and degree of control, whether the state appoints its officers and directors, how the state itself characterizes the entity, and the entity’s purpose. For a more thorough list of factors, see page 20 of the FCPA Guidance [1]. Examples of FCPA enforcement actions based on payments to SOE officials are numerous. In Latin America, they include the Orthofix [2] case involving Mexico’s state-owned healthcare and social services institution and the Aon [3] case involving Costa-Rica’s state-owned insurance company.
But there are other ways to look at state-owned companies as well. First, one should remember that SOEs do not represent one monolithic concept. There is an enormous variety of types, from independent, commercial outfits to enterprises packed with government officials pursuing government policy. Some compete for work in the marketplace and feel the pressures of the bottom line. Others are no more than arms of the state. FCPAméricas has discussed [4] the effects of political interference at SOEs based on first-hand experience.
Interestingly enough, for SOEs that experience real market pressures as independent actors, this can sometimes include the pressures to pay bribes themselves to others for business. Take Statoil for example. The state-owned Norwegian company was subject to an FCPA enforcement action [5] in 2006 for bribing an Iranian official through an offshore intermediary to secure oil and gas contracts. It settled the matter with the DOJ and SEC for $21 million, which at the time was the largest fine against a foreign company.
Moreover, like private sector companies, SOEs can be victims of fraud, embezzlement, and other abuse by their own employees. When large public dollars are at stake, employees might choose to bypass company policy to benefit themselves. Such a case was recently revealed in the U.S. Government’s action against Wall Street traders and a top official of Venezuela’s economic development bank, BANDES. The bank official hatched a corrupt scheme that involved channeling business to the traders and receiving millions of dollars in kickbacks in return through offshore accounts. FCPAméricas described the case in detail here [6].
SOEs might see themselves as victims in other ways. Some have even brought suits based on bribes that others have paid to their own officials. In 2011, the Costa Rican electricity utility unsuccessfully sued to obtain restitution for harm suffered when Alcatel bribed its officials. The action grew out of information that came to light in the 2010 FCPA action against Alcatel. A federal court denied [7] the petition, as described in this review [8]. In another case, last month, Mexico’s PEMEX amended a lawsuit [9] in U.S. federal court seeking $160 million from Siemens and SK Engineering & Construction Co. for bribes the companies allegedly paid to win contracts with PEMEX to modernize a refinery. The case is ongoing.
The lesson here is that, if your company interacts with SOEs in high-risk markets, perhaps as its customer, supplier, or business partner, it is helpful to keep these dynamics in mind. By considering the context of your business in a nuanced way, you enhance your own ability to assess risk, design controls, and obtain compliance cooperation with the SOE. In fact, some SOEs are starting to develop their own internal compliance measures comparable to those of non-government owned companies. This fact facilitates your ability to get compliance commitments from them. One day, an SOE might even be asking you to certify anti-corruption compliance or complete a due diligence questionnaire. Perhaps it already has.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com [10].
The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.
@2013 Matteson Ellis Law, PLLC