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The princeling problem: In search of a legal theory (Part 2)

The first post in this series mined DOJ Opinion Releases from the early 1980s concerning hiring family relatives. We discovered a bright-line rule: hiring the relative of a foreign official does not violate the FCPA if nothing of value passes through the relative to the official.

It turns out that another Release, this one from the mid-90s, provides an additional rule. It too is clear and helpful, and complements the 1980s Releases. 

Release 95-03 concerned a U.S. company forming a joint venture with a foreign entity that was owned by a close (but unspecified) relative of a foreign official. The facts here are complex and the release is a bit confusing. But of the many factors the release enumerates, the most important factor (for our purposes) would seem to be number three. 

It explains that the government official's duties did not relate to the joint venture. For this reason, hiring the relative could not secure an improper advantage for the company. That opinion did not have to reach the question of whether the relative's job had value to the foreign official; if the official has no official power over the company, it's irrelevant.  

Again, fairly clean and simple, producing a bright-line rule: hiring the relative of a foreign official does not violate the FCPA where the official's duties do not relate to the company’s interests.

Combined with the early-80s Releases, we can distill a two-prong test: "Hiring the relative of a foreign official can violate the FCPA where the official's duties relate to the hiring company's interests, and something of value passes through the relative to the official."

This as far as the opinion releases have gone. 

The FCPA Guidance tries to take us further, citing the case of U.S. v. Liebo, 923 F.2d 1308 (8th Cir. 1991) for the proposition that a violation occurs where the company gives gifts to a family member "as an indirect way of corruptly influencing a foreign official." The Guidance notes, accurately, that the bribe payor in Liebo had paid personal bills and provided airline tickets to a "cousin and close friend of the foreign official."  

This would tend to suggest that the relative need not serve as a third-party conduit for delivering things of value to the official; the things of value to the relative are themselves things of value for the official. 

However, Liebo did in fact involve direct gifts to the official. The relative was your classic third party through whom something of value passed to the ultimate official. (Interestingly in this case, the third-party relative was also a lower-level official, weakening the case's application to JP Morgan even further.)

Accordingly, that case does not establish the rule that where the relative is not himself an official, a gift to that relative, standing alone, in the absence of a gift to the actual official, constitutes a violation. The Guidance may be just a little misleading there, and I would encourage the government to revisit it.

So our two-prong test still stands. 

Next post, we'll apply it to JP Morgan and see where that leaves us. 


 Andy Spalding is a senior editor of the FCPA Blog. He's an Assistant Professor at the University of Richmond School of Law. He can be contacted here.