On Tuesday, May 10, 2011, California-based Lindsey Manufacturing Company (Lindsey) became the first corporate entity to be convicted of a violation of the Foreign Corrupt Practices Act (FCPA) at trial. A federal jury in Los Angeles returned convictions against the company, two of its employees and a Mexican sales agent. The defendants had been indicted on eight counts of conspiracy, substantive FCPA violations and money laundering based on the alleged payment of bribes via Mexican sales agents to officials of the Mexican state-owned utility, known as Comision Federal de Electricidad (CFE). The bribes were allegedly paid in order to secure orders for equipment manufactured by Lindsey.
Prior to the Lindsey case, all previous corporate defendants facing FCPA prosecution had either pled guilty or entered a settlement of the charges via non-prosecution or deferred prosecution agreements. Counsel for the company and its president, who along with the company CFO was among the defendants convicted on Tuesday, indicated that they would continue to pursue a motion to dismiss the indictment based on prosecutorial misconduct. Counsel for the Mexican sales agent, who was convicted as well, indicated that they would be seeking an acquittal from the court. Sentencing for the company and its executives is currently scheduled for September 16, 2011.
Lanny Breuer, Assistant Attorney General for the DOJ’s Criminal Division, described the conviction as “an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts,” adding that “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”
The Lindsey case had already made waves prior to trial, when U.S. District Judge Howard Matz denied a Motion to Dismiss based in part on a challenge to the DOJ’s interpretation of the term “foreign official” as it applies to the FCPA. FCPA enforcement is marked by its aggressive interpretation by federal law enforcement, including a broad interpretation of who may be considered a foreign official, and therefore within the scope of the statute’s anti-bribery provisions. The FCPA has faced limited judicial scrutiny in its 34-year history, including interpretations of what was required for a state-owned or state-run entity such as the CFE to be considered an “instrumentality” of a foreign government, and for its employees to thereby be considered “foreign officials.”
In an April 20, 2011 written order, Judge Matz upheld the DOJ’s position on the issue, finding that the CFE officials alleged to have received bribes were foreign officials for purposes of FCPA liability. This was the first time a court had directly addressed this question.
Earlier in the week, on May 9, 2011, the court in United States v. Carson, also pending in the Central District of California, held a hearing on a similar challenge. Carson is widely seen as presenting a more challenging set of facts that could be more likely to present a narrower interpretation of who may be considered a foreign official. District Judge James V. Selna concluded the hearing by taking the motion under submission. A final ruling in the Carson case is expected to be forthcoming.