Lawyers and the FCPA paparazzi can take something simple and make it complicated.  Take the issue of state-owned enterprises.  The government is going to win its appeal in the Haiti Telco case, just like they won at the district court level in three specific cases, including Haiti Telco.  Why?  The Justice Department has interpreted the FCPA statute correctly.  All you have to do is read on of its briefs and you will be persuaded – just like the 3 district court judges.

The term “instrumentality,” as used in the statute has to have an independent meaning.  Otherwise, Congress added a word to the statute which was superfluous.  That is contrary to basic logic and legislative interpretation.  The FCPA Professor can write all the tomes he wants to the contrary but he cannot escape this simple fact.  Justice Scalia would end the inquiry there.

So now, there is the question of how far the term “instrumentality” should be stretched when applying it to state-owned enterprises.  Unfortunately, the district judges did not outline the same exact tests.  Instead, just to make their own mark, they outlined a multi-factor test which differed in some respects.  In the end the differences are not so significant.

In my view, the test should be a lot simpler.  The FCPA statute is intended to prevent bribery of foreign officials.  A state-owned enterprise, which is controlled by the government, is a potential bribery target for businesses which want to engage in bribery.  If the government controls the entity, a company which pays bribes can skew the selection of the market and the selection of the “best” company to win a government contract.  The issue boils down to one principle – “control.”

The definition of “control” of an enterprise is readily available by turning to corporate governance principles.  Does the government have a majority ownership interest?  Does that translate into voting control of the entity?  If the answers are yes, case closed – let’s move on to the next issue. 

If the state-owned entity does not have a majority ownership stake but does have voting control of the enterprise, the case is closed and we need to move on to the next issue.

It is not that hard and it is not that complicated.  Joint ventures raise interesting issues when the ownership and voting control is split down the middle – 50/50.  Nonetheless, half is control and half is enough to transform the entity.  Usually, joint venture agreements carve out voting control over certain issues but that should not change the result.

When it comes to state-owned entities, the much harder issue in some countries is identifying those entities in which the government has a controlling interest.  Transparency is not a concept that has been embraced in the corporate world in the BRIC countries.

For example, in Russia, corporate structures are so convoluted, multi-layered and complex, it is almost impossible to dig down far enough in a company to determine the nature and extent of a government ownership interest.    The challenge is the investigation and the confirmation of a government ownership interest.

 In China, the challenge is to confirm the government’s ownership interest.  In some cases, it has taken companies months to confirm the government’s ownership interest or absence thereof.

Once the ownership interest is confirmed, a decision needs to be made on how to treat the entity with the government ownership interest.  A path forward can be mapped – it is really a question of willingness to take the steps needed to comply with the law.