In a stunning jury verdict following a five-week trial, a California federal jury took just one day to find a privately-held company and two of its senior officers guilty on all counts of violating the Foreign Corrupt Practices Act (“FCPA”). The verdict against Lindsay Manufacturing Company (“Lindsay Manufacturing”), a manufacturer of electrical transmission towers, is the first conviction of a corporation under the FCPA since the law was enacted in 1977. The charges against Lindsay Manufacturing, its President and its CFO, centered on allegations that they engaged in a seven-year scheme to pay bribes to procure contracts with a state-owned Mexican utility, Comisión Federal de Electricidad (CFE), by making payments to employees of the utility through an intermediary that represented companies doing business with CFE.
The trial was preceded by several hotly contested pre-trial rulings in which the court rejected various defense claims of prosecutorial misconduct and an aggressive challenge by Lindsay Manufacturing to a key element in an FCPA prosecution – the meaning of the term “foreign official.” Lindsay Manufacturing argued that the Mexican utility was not an “instrumentality” of the state within the meaning of the FCPA, and therefore, the commission payments made to CFE’s employees were not bribes paid to foreign officials. Although the judge rejected the foreign official challenge, there are several other FCPA cases in other jurisdictions in which that issue is being pursued vigorously by defense counsel and we will continue to monitor those cases.
If the verdicts are upheld, the company faces extensive monetary penalties. As for the individuals, each faces a maximum of five years in prison on each of five FCPA counts and an additional five years on a count of conspiracy to violate the FCPA.
Not surprisingly, the Department of Justice immediately cited the convictions as a harbinger of things to come under its ongoing FCPA enforcement program. Touts and condemnations of the verdict aside – companies both public and private – as well as their officers and employees, should take note of this verdict.