Can you hire a foreign official as your agent? Is a foreign official always a foreign official for the purposes of the Foreign Corrupt Practices Act (FCPA)? Can a person be a foreign official yet not under a contract for third party services? After all, the FCPA does not prohibit business relations with or even payments to foreign officials as there must be evidence of corrupt intent. Put another way, while such a scenario is certainly high risk under the FCPA, just because it is high risk does not mean that it cannot be accomplished. It simply means the risk management must be higher. The problem was laid out in Opinion Release 10-03 and I recently had the opportunity to revisit it.
The case involved the Requestor who was only identified as a US Limited Partnership which was in the natural resources trading and infrastructure business, both certainly recognized as high risk industries under the FCPA. The Requestor wanted to pursue a natural resources infrastructure project using a “novel approach” for the product development. Because of this novel approach, the Requestor, “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.”
This help was going to come in the form of a third-party consultant who, while a US citizen, held contracts to represent the foreign government in question, market on behalf of the foreign government’s Ministry of Finance and to lobby on behalf of the foreign government in the US. Most significantly, “The Consultant has represented ministries of the foreign government that will play a role in discussions of the Requestor’s initiative.” The Consultant would be paid a signing bonus if the contract was executed, “but 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.”
Clearly there were several red flags identified in the paragraph. First the Consultant, by virtue of its representation of the foreign government would be a foreign official for the purposes of the FCPA. Second was that the Consultant had consulting contracts with and did work directly for one or more of the foreign agencies which would consider the Requestor’s approval. Third is the payment arrangement which included a large success fee if a contract was signed. But once again, simply because something is high-risk does mean you cannot or even should not do it, it simply means the management of that risk must be correspondingly robust. To that end, the Requestor made the following representations:
- The owner of the Consultant will cease to lobby on behalf of the foreign government, although other employees of the Consultant could continue to represent the foreign government in the United States;
- A Chinese Wall would separate those lobbying efforts for the foreign government will be walled off from those working on the representation of the Requestor;
- The Consultant nor its company would take on any additional representation of the foreign government be undertaken for the duration of the consultancy;
- The Consultant did not and would not have any decision-making authority on behalf of the foreign government;
- Under local law, the Consultant was not an employee or otherwise an official of the foreign government;
- The Requestor has secured a local law opinion, stating it was “permissible for the Consultant to represent both the foreign government and the Requestor at the same time”;
- The proposed contract required that the Consultant confirm that none of its employees were foreign officials and that no employee or associated individual will become a foreign official during the term of the agreement;
- The contract between the Requestor and Consultant was disclosed to the Ministry of Finance of the foreign government;
- Preapproval by the Requestor would be required before the Consultant would engage in action(s) with respect to the foreign government’s officials;
- The Consultant committed that he will not represent nor have additional business relationship with the foreign government in connection with the project; and, finally,
- The Consultant would not communicate with the foreign government in any respect outside the scope of the services they were providing to the Requestor, with the exception of those communications related to the ongoing representation of the foreign government which have been previously disclosed.
The Department of Justice (DOJ) began its analysis by noting, it “has in the past considered proposed business arrangements with individuals who act on behalf of foreign governments under the Opinion Procedure. Notably, the FCPA does not per se prohibit business relationships with, or payments to, foreign officials. In such cases, the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”
The DOJ then pointed to four previous Opinion Releases where it had passed favorably on US companies. In Opinion Release 80-02, an employee of a foreign subsidiary of a US corporation ran for political office but this did not run afoul of the FCPA because the employee disclosed his continuing relationship with the corporation to his political party, the nation’s electorate, and the government. In Opinion Release 82-02, a US firm proposed paying a “finder’s fee” to a Nigerian citizen who was employed in Nigeria’s foreign consulate, this did not run afoul of the FCPA because the work to be performed for the firm was in no way related to the Nigerian citizen’s governmental duties. In Opinion Release 86-01, the DOJ allowed a US corporation to employ Members of Parliament (MP) of a foreign company because the MPs agreed to fully disclose their representation relationships, not to vote or conduct any other legislative activity for the benefit of the corporations, and not to use their influence as MPs to benefit the corporations. Finally, in Opinion Release 94-01, the a Requestor’s proposal to hire a foreign official to provide consulting assistance, was approved because the foreign official in question disclosed the proposed consulting activities to his state employer and agreed to abide by all applicable disclosure laws and regulations.
Here the Consultant was clearly an agent of a foreign government, as there were situations where he was acting on behalf of the foreign government. However, for purposes of the consulting contract with the Requestor, the Consultant was not acting on behalf of the foreign government and therefore is not a foreign official under the definition of the FCPA. Yet there were other protections which were critical to the DOJ coming to this conclusion.
- The Consultant was walled off from work his company did on behalf of the foreign government.
- There was full disclosure of the relationships to the relevant governmental agencies.
- The arrangement was permissible under local law and there was a local law firm opinion to back up this assertion.
- The consulting contract had contractual protection in place to limit further representation of the foreign government by the Consultant.
Because the Opinion Release turned on the issue of the Consultant’s status as a foreign official, the DOJ did not offer an opinion on the payment arrangements.
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© Thomas R. Fox, 2019