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United States v. Aguilar

District Court, C.D. California
783 F. Supp. 2d 1108 (2011)
ELI5:

Rule of Law:

A state-owned corporation can be considered an 'instrumentality' of a foreign government under the Foreign Corrupt Practices Act (FCPA). Consequently, an employee of such a corporation may be classified as a 'foreign official' for the purposes of FCPA liability.


Facts:

  • Lindsey Manufacturing Company (LMC), a California-based company led by President Keith E. Lindsey and CFO Steve K. Lee, manufactured equipment for electrical utilities.
  • LMC sought to obtain business contracts from Comisión Federal de Electricidad (CFE), an electric utility company wholly-owned by the Mexican government.
  • Nestor Moreno and Arturo Hernandez were high-ranking employees at CFE with influence over contract awards.
  • LMC hired Enrique Aguilar of Grupo International as its sales representative in Mexico.
  • Lindsey and Lee allegedly agreed to pay Aguilar a 30% commission on all sales to CFE.
  • It was alleged that all or a portion of this commission money was intended to be used to bribe Moreno, Hernandez, and other officials at CFE in exchange for CFE awarding contracts to LMC.
  • LMC funneled the alleged bribe payments to the CFE officials through the commission payments made to Grupo International.

Procedural Posture:

  • The U.S. Government filed a First Superseding Indictment in the U.S. District Court, charging Keith E. Lindsey, Steve K. Lee, and Lindsey Manufacturing Company with conspiracy to violate the FCPA and with substantive FCPA violations.
  • Defendants Keith E. Lindsey, Steve K. Lee, and Lindsey Manufacturing Company filed a motion to dismiss the charges.
  • Defendant Angela Aguilar joined the defendants' motion to dismiss.

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Issue:

Does the term 'instrumentality of a foreign government' under the Foreign Corrupt Practices Act (FCPA) categorically exclude state-owned corporations, thereby making their employees ineligible to be considered 'foreign officials'?


Opinions:

Majority - A. Howard Matz

No. The term 'instrumentality of a foreign government' under the FCPA does not categorically exclude state-owned corporations; such an entity can qualify as an 'instrumentality,' and its employees can therefore be 'foreign officials.' The defendants' argument that state-owned corporations can never be instrumentalities is rejected. The court determines that the classification is a fact-specific inquiry. Examining the plain meaning of 'instrumentality' and applying canons of statutory construction, the court concludes that an entity can be an instrumentality if it serves as a means for the government to achieve its ends. The court established a non-exclusive list of factors to determine if an entity is an instrumentality, including whether it provides a public service, is controlled and financed by the government, and is perceived as performing governmental functions. CFE possesses these characteristics, as it was created by statute to perform the exclusively governmental function of supplying electricity in Mexico, and its leadership is appointed by government officials. Furthermore, interpreting 'instrumentality' to include state-owned enterprises aligns the FCPA with the United States' obligations under the OECD Convention, which Congress intended to implement.



Analysis:

This decision was one of the first and most influential judicial opinions to interpret the term 'instrumentality' under the FCPA. By rejecting a bright-line rule that would exclude all state-owned corporations, the court established a flexible, fact-based test that significantly expanded the perceived scope of the FCPA. The ruling affirmed the U.S. government's position that bribes to employees of state-owned commercial enterprises are prosecutable, providing a key precedent for numerous subsequent enforcement actions. This has had a profound impact on corporate compliance programs, forcing companies to conduct due diligence on entities that may appear commercial but have significant government ownership or control.

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