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The FCPA in Russia and other Former Communist Countries

Published online by Cambridge University Press:  27 February 2017

Christopher F. Dugan  and
Vladimir Lechtman
Christopher F. Dugan
Affiliation:
Jones, Day, Reavis & Pogue, Washington, D.C.
Vladimir Lechtman
Affiliation:
Akin, Gump, Strauss, Hauer & Feld, LLP, Washington, D.C.
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Type
Current Developments
Information
American Journal of International Law , Volume 91 , Issue 2 , April 1997 , pp. 378 - 388
Copyright
Copyright © American Society of International Law 1997

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References

1 See, e.g., Robinson, Duncan, Russia: Payoffs Endanger Emergence of Market , Inter Press Service, July 27, 1992,Google Scholar available in LEXIS, News Library, INPRES File.

2 Foreign Corrupt Practices Act, Pub. L. No. 95-213, 91 Stat. 1494 (1977), as amended by Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, tit. V, §5003(c), 102 Stat. 1107, 1419 (1988) (codified at 15 U.S.C. §78dd (1994)).

3 The average Russian state employee makes the equivalent of $200–300 a month, a salary that can often barely support subsistence.

4 E.g., Ukaz Prezidenta Rossiiskoi Federatsii obor’be skorruptsiei vsisteme gosudarstvennoi sluzhby, Art. 1, Rossiiskaia Gazeta, Apr. 4, 1992 [hereinafter Ukaz Prezidenta]. See also Playing Chinese Solitaire with KGB Deck of Cards, Russ. Press Dig., Mar. 26, 1994, available in LEXIS, News Library, SPD File.

5 Yeltsin Decree on Anti-Corruption, U.S. Law Put Investors in Difficult Dilemma, Official Kremlin Int’l News Broadcast, Sept. 21, 1992, available in LEXIS, News Library, SOVNWS File [hereinafter Yeltsin Decree].

6 Ukaz Prezidenta, supra note 4, does not define the term. According to one report, most Russian lawyers interpret it to mean officials at the ministerial level, but a more literal reading could mean anyone who works for the Government or any state enterprise. Similarly, since the Russian Criminal Code lacks a definition of “corruption,” law enforcement officials struggle to prove corruption in criminal proceedings. Yeltsin Decree, supra note 5.

7 Corruption is Rife in Russia, Police Chief Says, UPI, June 9, 1992, available in LEXIS, News Library, UPI File.

8 Pascal Krop, L’Argent noir de la France, L’E vénement , Sept. 29, 1988, at 50. See also Waterhouse, Rosie, The Sleazy State: Britain ‘Resisting Moves to Hak Bribes to Officials ,’ Independent (London), Mar. 16, 1994, at 3.Google Scholar

9 Recommendation of the Council on Bribery in International Business Transactions, OECD Doc. C(94)75/ Final (May 27, 1994). See David Buchan & George Graham, OECD Members Agree on Action to Curb Bribery of Foreign Officials, Fin. Times (London), Apr. 30, 1994, at 2.

10 Buchan & Graham, supra note 9.

11 On a different front, the U.S. Central Intelligence Agency has begun to monitor and report bribery of foreign officials by non-U.S. companies to the governments for which the officials work. Former CIA Director R. James Woolsey said that these actions have already saved valuable contracts for American companies. U.S. Seeks to Halt Illegal Payoffs by Foreign Corporations, Wash. Post , Dec. 3, 1993, at A10. The CIA started these activities at the request of Attorney General Janet Reno, who apparendy seeks to improve the international legal environment in which American companies function. Walter Pincus, CIA Struggles to Find Identity in a New World, Wash. Post , May 9, 1994, at Al, A9.

12 15 U.S.C. §78dd-1(1994). In addition to the antibribery sections discussed in this Note, the Act includes accounting provisions generally requiring all companies that have securities registered with the Securities and Exchange Commission (including some foreign issuers with securities represented by American Depository Receipts) to maintain proper books and records and to develop a system of internal accounting controls. 15 U.S.C. §78m.

13 H.R. Conf. Rep. No. 100-576, at 919 (1988).

14 Id.

15 15 U.S.C. §78dd-1(b) & 78dd-2(b).

16 15 U.S.C. §78dd-1(c)(2) & 78dd-2(c)(2).

17 15 U.S.C. §78dd-1(b) & 78dd-2(b).

18 S. Rep. No. 95-114, at 10 (1977).

19 15 U.S.C. §78dd-1(f)(3) & 78dd-2(h)(4).

20 15 U.S.C. §78dd-l (c) (2) & 78dd-2(c)(2). The Act also allows companies and individuals facing bribery charges to argue that their payments were lawful under the laws of the foreign country, provided these laws explicidy permitted the given payment (rather than merely not prohibiting it). 15 U.S.C. §78dd-1(c)(1) & 78dd-2(c)(1). This provision is usually of little practical importance.

21 DOJ Release No. 85-01 (July 16, 1985).

22 United States v. Liebo, 923 F.2d 1308, 1310-11 (8th Cir. 1991).

23 Although the Act does not apply direcdy to foreign companies, at least one U.S. court has applied it to foreign individuals who are agents of an American company, who direct bribery schemes from the United States, and over whom the Court can otherwise exercise personal jurisdiction. To determine whether personal jurisdiction over a foreigner exists, the courts first examine the “long-arm” jurisdictional state statutes, and then the constitutional due process requirements, which are satisfied if the foreigner maintains sufficient “minimum contacts” with a given state. Renting or buying real property in the United States may amount to sufficient minimum contacts to establish jurisdiction over the foreign person. See Dooley v. United Tech. Corp., 803 F.Supp. 428, 439 (D.D.C. 1992).

24 H.R. Conf. Rep. No. 95-831, at 14 (1977).

25 The Act applies not only to payments offered to officials of a foreign government, but also to any offers made to a foreign political party official, a candidate for foreign political office, or any other person (e.g., an agent or a sales representative), if the U.S. company offering the payment knew that a foreign official would ultimately receive all or a portion of it.

26 H.R. 15149, 94th Cong., 2d Sess. (1976).

27 Law on Privatisation of State and Municipal Enterprises in the Russian Federation, Art. 3(6), translated in Collected Legislation of Russia (W. E. Butler ed., loose-leaf 1993). A new State Privatization Program has superseded the 1992 law with respect to certain industries, such as civil defense facilities, energy facilities, and communication and transport facilities. The 20% voting limit does not apply to these entities, which are privatized only with the specific permission of the Russian Federation Government. The Government decides whether to privatize and how much ownership and control the State Property Fund retains in each case. The choice is between not restricting privatization or restricting it by retaining 51, 38 or 25.5% of the voting shares in the hands of the Government, provided the retention lasts no more than three years. State Program for the Privatization of State and Municipal Enterprises of December 24, 1993, Art. 2, translated in 2 Russia and the Republics Legal Materials (loose-leaf 1994) [hereinafter State Program].

28 DOJ Release No. 93-1 (Apr. 20, 1993).

29 A publication, Business Eastern Europe, stated that the “US Department of Justice holds the position that an employee of an enterprise which is more than 50% state-owned qualifies as a foreign official.” Operational Issues: Coping xuith Corruption in the CIS, Bus. E. Eur. , June 7, 1993, available in 1993 WL, BUS-INTL Database.

30 Pub. L. No. 94-583, §4(a), 90 Stat. 2891, 2892 (1976) (codified at 28 U.S.C. §1603(b) (1994)).

31 Courts have extended the FSIA to entities controlled or owned by more than one foreign state, even if no single state holds a majority interest. The courts have held that failure to consider such entities as government instrumentalities would be to disregard the well-established international practice of states acting jointly for public or sovereign purposes. See, e.g., LeDonne v. Gulf Air, Inc., 700 F.Supp. 1400, 1406 (E.D. Va. 1988) (Gulf Airlines Corp., owned by four foreign states, was a government instrumentality). Hence, if Russia, Ukraine and Kazakstan established an oil company in which each held a third of the shares, under the FSIA the company probably would be a government instrumentality. But see International Ass’n of Machinists v. OPEC, 477 F.Supp. 553, 560 (CD. Cal. 1979), aff’d, 649 F.2d 1354 (9th Cir. 1981), cert, denied, 454 U.S. 1163 (1982) (holding that OPEC could not be served under the FSIA because the FSIA applied only to “foreign sovereigns”).

32 Schoenberg v. Exportadora de Sal, S.A. de C.V., 930 F.2d 777, 779 n.l (9th Cir. 1991). See also Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, S.A., 875 F.2d 1174, 1176 (5th Cir. 1989) (a Brazilian petroleum company was an instrumentality of the Brazilian Government because the Government owned the majority of its shares).

33 Kramer v. Boeing Co., 705 F.Supp. 1392, 1394 (D. Minn. 1989).

34 Cargill Int’l S.A. v. M/T Pavel Dybenko, 991 F.2d 1012, 1013 (2d Cir. 1993).

35 S. Rep. No. 95-114, supra note 18, at 4.

36 Id.

37 This analysis applies, with some qualifications, to the new Privatization Program published in December 1993. See State Program, supra note 27.

38 Cargill, 991 F.2d 1012 (2d Cir. 1993).

39 Hober, Kaj, The 1994 Privatization Program: Has Russian Privatization Reached the Age of Aquarius? , Surv. E. Eur. L., Apr. 1994,Google Scholar at 1, 7.

40 Note that some variations of this privatization plan exist in the case of particularly valuable Russian industries, such as oil. Under one scheme, the Government keeps a 38% stake during a transitional period of three years. Outsiders have the chance to acquire a 17% stake, and the workers and managers receive the rest. Because under this scheme the workers receive 45% of the equity, at the second stage the enterprise may still be a state instrumentality until the Government manages to sell at least another 6% of the total shares.

Another scheme would apply in the case of integrated oil companies (which encompass networks from the wellhead to gas pumps). The Government would keep a 45% stake in these companies for three years, while 40% would be sold inside Russia and 15% would go to foreign investors. There apparendy would be no immediate distribution of shares to the workers, so that until the Government completes the sale of 51 % of the shares, these giants might also remain state instrumentalities. Russian Oil: the Prize, Economist , Aug. 7, 1993, at 61.

41 The officials susceptible to bribes are not just the managers of the enterprises undergoing privatization, but the officials of the State Property Fund, whose status as “foreign officials” under the FCPA does not change as enterprises privatize.

42 The Polish Treasury now owns and controls six hundred enterprises that have assumed the form of joint stock companies. Their shares will be distributed to 20 newly created National Investment Funds (NIFs) managed by private Western and Polish management firms. The NIFs, however, will be owned and controlled by the Treasury for at least another two years. Hence, even after the distribution of the enterprises’ shares to the NIFs, the enterprises will still qualify as government instrumentalities because they will be owned and controlled by the NIFs, which are also state instrumentalities. Any given enterprise out of the six hundred will become private only after the citizens have exchanged their vouchers for 51% of the enterprise’s shares held by the NIFs. Lynda L. Maillet, Mass Privatization in Poland, Surv. E. Eur. L., Mar. 1994, at 1, 9–11.

43 S. Rep. No. 95-114, supra note 18, at 10.

44 Id.

45 DOJ Release No. 82-02 (Feb. 18, 1982).

46 DOJ Release No. 86-01 (July 18, 1986).

47 The DOJ releases did not hinge on whether these individuals were foreign officials but on whether the activity amounted to “obtaining” business. They are nonetheless influential in deciding who a foreign official is.

48 Remarks of Roger M. Olsen, Special Counsel to the Associate Attorney General, United States Department of Justice, in Enforcement of the Foreign Corrupt Practices Act by the Reagan Administration 15 (1983), reprinted in prior versions of Foreign Corrupt Practices Report (Business Laws Inc. 1992).

49 United States v. W.S. Kirkpatrick, Inc., FCPA Rep. 696.79 (D.N.J. 1985).

50 See, e.g., Lockheed Facing Legal Woes Again, Marietta Daily J., Oct. 17, 1994, at A1.

51 Egyptians May Be Forced to Testify in Lockheed Case, Atlanta J., Aug. 19, 1994, at D6.

52 Bribery Case Puts Lockheed Under Scrutiny, Atlanta J., Jan. 28, 1995, at B1.