Financial news the last two weeks or so has been dominated by news that the Dubai government apparently will not back the debt of Dubai World, Dubai's wholly-owned investment vehicle.
Because I tend to view news with "FCPA goggles on," the Dubai story got me thinking again about a critical FCPA topic and that is the DOJ/SEC's untested and unchallenged theory that all employees (regardless of rank or title) of alleged state-owned or state-controlled entities are "foreign officials" under the FCPA. See here for my prior posts on this subject. This theory has been applied not just to business entities wholly or majority owned by a foreign government, but also minority owned entities as well (see the KBR / Halliburton matters involving Nigeria).
So just who are Dubai "foreign officials"?
Dubai World owns a host of real estate, leisure and financial service assets both inside and outside of Dubai. In fact "the sun never sets on Dubai World" (at least that is what it says on its website see here) and its investment portfolio extends across 100 different cities in the world.
Many of Dubai World's entities bear all the resemblences of a private sector business, such as public stock offerings, loan agreements from private banks, etc.
Are such entities, which in theory are suppose to advance the public sector goal of their government "owners or controllers," state-owned or state-controlled entities even though another purpose of these entities is to maximize profit for the benefit of private investors?
Consider also that "westerners" run some of Dubai World's main holdings. Under the Dubai World umbrella is Nakheel ("the world's largest privately held real estate company") (see here). The CEO of Nakheel is an Australian (see here). Same with Istithmar World (an investment house 100% owned by Dubai World, which is in turn wholly owned by the Government of Dubai) (see here). The CEO of Istithmar is an American (see here).
Would DOJ/SEC consider an Australian and an American to be Dubai "foreign officials" under the FCPA simply because they work for Dubai World?
If DOJ/SEC prosecution theories in other FCPA enforcement actions were to be consistently applied, the answer (it seems) would have to be yes.
This result would seem to be at odds with common sense and, more importantly, the intent of Congress in enacting the FCPA (as reflected in the FCPA's extensive legislative history).
The Dubai World example is not unique, there are countless other examples that could also be discussed.
With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with alleged "state-owned or state-controlled" entities listing public shares on various exchanges and otherwise doing business around the world, there has never been a more opportune (and critical) time for the government to make clear its reasoning and support for its prosecuting theory on this issue.
This is not merely a side issue.
Most FCPA enforcement actions in recent years (i.e. the time period during which FCPA enforcement has escalated) involve not core government officials, but rather "foreign officials" only under this untested and unchallenged theory. Case in point, the FCPA enforcement action announced late this afternoon (see here) involving employees of Haiti's alleged state-owned national telecommunications company - a matter I will post on shortly.
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As a result of last year's financial turmoil, you need to look at most financial instutions and other troubled enterprises to see if they are state-owned or state controlled.
ReplyDeleteYou could argue that many banks in EU are state-owned enterprises. You could also argue that General Motors is a state-owned enterprise, leading you to think about whether the foreign subsidiaries would fall under the FCPA.