Sovereign Wealth Funds and the FCPA

Numerous previous posts have discussed the enforcement agencies' interpretation of the key "foreign official" element of an FCPA antibribery violation and how that interpretation includes employees (regardless of title or position) of state-owned or state-controlled enterprises ("SOEs") - even if the SOE has attributes of a purely commercial enterprise such as publicy traded stock. Part of this interpretation includes the notion that all employees of SOE subsidiaries are also "foreign officials" under the FCPA.

This interpretation has never been accepted by a court, yet it remains a central feature of FCPA enforcement.

Two-thirds of 2009 FCPA enforcement actions against business entities involved, in whole or in part, "foreign officials" under this dubious legal interpretation.

The most aggressive application of the enforcement agencies' “foreign official” interpretation was in the KBR / Halliburton enforcement action (here and here) in which the enforcement agencies alleged that officers and employees of Nigeria LNG Limited ("NLNG") were "foreign officials" despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies – Shell, Total, and Eni (see here).

In other words, even if an entity is undeniably majority owned by private companies, the enforcement agencies will not retreat from the dubious legal interpretation that employees of that entity are “foreign officials” under the FCPA.

I've noted before that this dubious legal interpretation can lead to strange results such as employees of a Delaware company perhaps being Venezuelan "foreign officials" (see here) and an American citizen perhaps being a Dubai "foreign official" (see here).

Strange and unexpected results can also occur when applying the enforcement agencies' "foreign official" interpretation to so-called sovereign wealth funds (i.e. foreign government owned investment vehicles).

While no FCPA enforcement action has yet involved a sovereign wealth fund, such funds and the investments these funds make in private companies, are clearly on the radar screen of the enforcement agencies as both DOJ and SEC officials have in the past publicly stated that sovereign wealth funds pose FCPA risks because the funds are government owned (see here and here).

The next frontier of the enforcement agencies' dubious "foreign official" interpretation may thus be application to the investments made by sovereign wealth funds.

Against this backdrop, it is interesting to take a peek inside one of the largest sovereign wealth funds, China Investment Corporation (here), "an investment institution established as a wholly state-owned company under the Company Law of the People’s Republic of China and headquartered in Beijing."

According to CIC's recent SEC filing (here), the exact reason for that filing appears unclear (see here), CIC owns equity stakes in more than 60 U.S. corporations including Abbott Labs, Apple, Bank of America, Coca-Cola, Goodyear Tire and Rubber, Metlife, Pfizer, Pulte Homes, Visa, and Wells Fargo.

At present, CIC's holdings are small, minority stakes. However, if CIC's holdings grow, would Coca-Cola, Wells Fargo, etc. employees be considered Chinese "foreign officials?" Can it truly be the case that such U.S. citizen employees (regardless of title) are percentage points away from becoming Chinese "foreign officials?"

The rise in sovereign wealth funds, particularly CIC, is not just a U.S. issue, as CIC has acquired substantial stakes in Canadian and Australian companies as well. Does that mean that a Canadian or Australian citizen can be a Chinese "foreign official?"

The above questions are not merely hypotheticals and it seems ridiculous to think that the answers would be "yes" - but that would seem to be the answer if the enforcement agencies' dubious "foreign official" interpretation were applied in an intellectually honest fashion to the above questions.

With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear its legal reasoning and support for its dubious legal theory.