There are two important takeaways from Gibson, Dunn & Crutcher’s new report on Foreign Corrupt Practices Act enforcement in the first half of 2011. The first is that for all the FCPA sound and fury, the Justice Department has brought only 8 actions so far this year, and the Securities and Exchange Commission only 9. If that pace continues, FCPA actions will be down to 2007-2008 levels, off the torrid pace of the last two years.
But Gibson Dunn says the decline is attributable to the other big development in FCPA litigation: Government lawyers don’t have as much time to bring new cases because they’re stuck in court trying the cases they’ve already brought. “The trend had been for nearly all defendants to settle [FCPA] enforcement actions short of litigation, leaving the DOJ and SEC positions largely untested,” says the Gibson report, which was released yesterday. “This year, that is changing. 2011 is poised to yield a record number of trials (and certainly defendants) to challenge FCPA charges. Even Corporate America is playing its part, with the first-ever FCPA trial of a company.”
There have been two FCPA trials so far this year, and neither has cast the government in a flattering light. Last Friday, after jurors failed to reach a verdict in a case accusing four arms dealers of bribing Gabon officials, Washington, D.C. federal judge Richard Leon declared a mistrial. In May, prosecutors won the previous FCPA trial, a criminal case involving Lindsey Manufacturing, two top Lindsey executives, and an intermediary between Lindsey and Mexican electric utility officials. But on June 27 Los Angeles federal judge A. Howard Matz held a hearing on defense allegations of prosecutorial misconduct; the FCPA Professor blog said said Matz’s comments at the hearing suggested that “the DOJ's only jury trial conviction of a corporate entity in FCPA history may be hanging by a thread.”
There will be several more courtroom tests of the Justice Department’s FCPA prosecutions in the second half of 2011 and the first half of 2012, according to the Gibson Dunn report. Two executives of a company called Telecom Consulting Services Corp., who are accused of bribing Haitian telecom officials, are scheduled to be tried beginning July 18 in Miami federal court; two other defendants in the same case will be tried after the first trial concludes. An ABB general manager who allegedly bribed Commodities Future Exchange officials has an October 25 trial date in the federal court in southern Texas. And next June, five former executives of Control Components, Inc., who allegedly helped the company bribe officials to secure control-valve contracts in 36 countries, will go to trial in Los Angeles federal court.
The CCI and Lindsey cases both raised what the Gibson report calls “the question on every FCPA practitioner’s lips these days”: Who is a ‘foreign official’ under the language of the FCPA? In Lindsey and CCI, defense lawyers argued that employees of state-controlled business cannot, as a matter of law, be deemed foreign officials. Both of the judges overseeing the cases disagreed, finding that such employees can be considered foreign officials for the purposes of FCPA prosecution. Judge Matz ruled that the employee in the Lindsey case was a foreign official; Judge James Selna, who’s overseeing the CCI case, said it’s up to the jury to decide.
(Reporting by Alison Frankel)