My partner is now a foreign official! First DOJ opinion release of 2014
Monday, March 24, 2014 at 7:18AM
Richard L. Cassin in Foreign Official, Intent, Opinion Procedure Release, appraised value, banking regulator, cconflict of interest, financial services company, investment bank, knowlege, monetrary authority, recusal

The DOJ issued its first FCPA opinion procedure release of the year on March 17 (and posted it to its website nearly a week later).

The opinion request came from "a United States financial services company and investment bank," the DOJ said.

The Requestor first asked the DOJ for opinion on July 8, 2013. A couple of weeks later, the DOJ asked for more information. The Requestor responded in September with "significant backup documentation." It took "several follow up discussions" between the DOJ and the Requestor after that, the DOJ said. It wasn't until February 13, 2014 that the DOJ accepted "a final submission that addressed the last outstanding issues."

The Requestor -- an “issuer” under the FCPA -- owns a foreign financial services firm. It committed to buy a minority interest in the firm held by a foreign businessman after he'd been appointed to "a senior government position in a foreign country."

The position was in the foreign country's central monetary and banking agency. "By virtue of his
appointment, [the foreign shareholder] became a 'foreign official' within the meaning of the FCPA," the DOJ said in the release.

After his government appointment, the foreign shareholder became a passive shareholder in the Requestor's foreign company. And he "recused himself from any decisions concerning the award of business to the Requestor or [its foreign company] or their affiliates," the DOJ said.

When the Requestor and the foreign shareholder started to negotiate the sale of his shares, they tried to value the shares using a formula in their 2007 shareholders agreement.

But the formula produced a negative value for the shares because of unanticipated losses by the Requestor's foreign subsidiary after the 2008 financial crisis.

So the parties agreed not to use the valuation formula in the 2007 agreement, the DOJ said.

Instead, the Requestor and the foreign shareholder hired "a leading, highly regarded, global accounting firm to determine the shares’ value," the DOJ said.

The Requestor asked the DOJ to approve its share acquisition at the newly appraised value. The Requestor said the foreign official would continue to recuse himself from decisions involving the Requestor. And the share deal wouldn't violate any laws in the foreign shareholder's country, the Requestor said.

"Based upon all of the facts and circumstances, as represented by the Requestor, the [Justice] Department does not presently intend to take any enforcement action with respect to the proposed buyout arrangement described in the Request."

The DOJ said there was no indicia of corrupt intent. It said the purpose of the payment "is to sever the parties’ existing financial relationship, which began before the foreign shareholder held an official position. Doing so would also avoid what would otherwise be an ongoing conflict of interest."

DOJ Opinion Procedure Release 14-01 dated March 17, 2014 (and all other opinion procedure releases) can be downloaded here.


Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.

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