FOREIGN CORRUPT PRACTICES:
CREATING AN EXCEPTION TO THE
ACT OF STATE DOCTRINE
INTRODUCTION
The number of lawsuits involving the conduct of foreign sovereigns has increased dramatically as American business transactions
have assumed global dimensions. American corporations have
sought compensation for injuries stemming from activities such as
anticompetitive conspiracies' and the nationalization of corporate
assets.2 Although the doctrine of sovereign immunity generally precludes American companies from proceeding directly against a foreign sovereign, 3 these companies may bring actions against private
parties. 4 In many cases, the activity challenged by the plaintiff in a
suit between private litigants may, nevertheless, give rise to an ex1. See, e.g., Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1290 (3d Cir.
1979) (manufacturer of floor covering alleged competitor fraudulently induced issuance of
foreign patent); Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 601 (9th Cir. 1976)
(plaintiff alleged bank officials conspired to gain control of Honduran lumber business); Sage
Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 898 (E.D. Mich. 1981) (plaintiff alleged
antitrust conspiracy in armored car market); Dominicus Americana Bohio v. Gulf & Western
Indus., Inc., 473 F. Supp. 680, 685 (S.D.N.Y. 1979) (plaintiff alleged competitor conspired
with foreign government to gain advantage in tourist industry); General Aircraft Corp. v. Air
Am., Inc., 482 F. Supp. 3, 5 (D.D.C. 1979) (plaintiff alleged antitrust conspiracy in aircraft
equipment market that resulted in lost sales to foreign governments).
2. See, e.g., Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 685
(1976) (Cuba's nationalization of five cigar businesses); Banco Nacional de Cuba v. Sabbatino,
376 U.S. 398, 406 (1964) (Cuba's nationalization of assets of sugar firm); Ricaud v. American
Metal Co., 246 U.S. 304, 305-06 (1918) (Mexico's seizure of lead bullion); Oetjen v. Central
Leather Co., 246 U.S. 297, 299 (1918) (Mexico's seizure of leather hides); Hunt v. Mobil Oil
Corp., 550 F.2d 68, 72 (2d Cir. 1977) (Libya's seizure of assets of oil producer), cert. denied,
434 U.S. 984 (1978).
3. The Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. §§ 1330,
1332(a)(2)-(4), 1391(0, 1441(d), 1602-1611 (1982), grants immunity to foreign sovereigns
from suit in U.S. federal court provided that the sovereign does not engage in conduct as
specified in §§ 1605 to 1607 of the FSIA. Id. § 1604.
4. See, e.g., Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 898 (E.D. Mich. 1981)
(action against private company that allegedly conspired to prevent free trade in armored cars
market); General Aircraft Corp. v. Air Am., Inc., 482 F. Supp. 3, 5 (D.D.C. 1979) (alleged
antitrust conspiracy in domestic and foreign markets for short takeoff and landing aircraft);
Dominicus Americana Bohio v. Gulf & Western Indus., Inc., 473 F. Supp. 680, 685 (S.D.N.Y.
1979) (alleged monopolization of tourist facilities); Bokkelen v. Grumman Aerospace Corp.,
432 F. Supp. 329, 330 (E.D.N.Y. 1977) (action against private company that allegedly interfered with aircraft broker's exclusive distributorship rights).
203
204
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
amination of sovereign conduct. 5 Courts have been reluctant to adjudicate these claims, however, because of the ramifications that
these suits may have on foreign policy, 6 authority over which gener7
ally rests in the executive and legislative branches.
Most courts have based their decisions not to hear these actions
on the act of state doctrine. 8 The act of state doctrine directs courts
to abstain from inquiring into the validity of sovereign acts performed within the sovereign's territory.9 The act of state doctrine is
5. See, e.g., Industrial Inv. Dev. Corp. v. Mitsui & Co., 594 F.2d 48, 55 (5th Cir. 1979)
(antitrust suit required examination of Indonesia's motivation for purposes of measuring
damages), cert. denied, 460 U.S. 1007 (1983); Hunt v. Mobil Oil Corp., 550 F.2d 68, 75-77 (2d
Cir. 1977) (although Libya not party to suit, court required to examine motives of Libyan
government), cert. denied, 434 U.S. 984 (1978); Occidental Petroleum Corp. v. Buttes Gas &
Oil Co., 331 F. Supp. 92, 110-12 (C.D. Cal. 1971) (antitrust action required inquiry into motivation of various foreign sovereigns), afdmem., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S.
950 (1972).
6. See, e.g., Baker v. Carr, 369 U.S. 186, 211-13 (1962) (although all foreign policy issues
are not political questions, courts should be careful not to intervene excessively in this area);
Oetjen v. Central Leather Co., 246 U.S. 297, 302 (1918) (foreign policy issues committed to
executive and legislative branches).
Courts' reluctance to get involved in this area is based in part on the constitutional separation of powers of the three branches of government. The Constitution limits the role of the
judiciary in foreign affairs to cases arising under the Constitution and U.S. laws, including
treaties, to cases affecting ambassadors and public ministers, and to controversies between the
states and their citizens. U.S. CONST. art. III, § 2; see L. HENKIN, FOREIGN AFFAIRS AND TIE
CONSTIrTION 205-24 (1972) (discussing role of courts in foreign affairs). Issues involving
foreign affairs rarely arise in actual cases or controversies and, therefore, the judiciary's role
in foreign affairs is limited. Id. at 208.
7. See, e.g., United States v. Curtiss-Wright Corp., 299 U.S. 304, 319-22 (1936) (President's power in foreign affairs is broad and primary and Congress' is secondary). Despite the
Supreme Court's broad interpretation of the President's power in foreign affairs, very few
presidential powers are enumerated in the Constitution. The Constitution allows the executive branch to make treaties and to appoint ambassadors "with the Advice and Consent of the
Senate." U.S. CONST. art. II, § 2, cl. 2. The President has the power to receive ambassadors.
Id. § 3. The Constitution also places in the executive the duty to serve as "Commander in
Chief of the Army and Navy," id. § 2, cl. 1, and the related duty to "take care that the Laws be
faithfully executed ..
" Id. § 3.
Unlike the Constitution's general statements concerning the executive branch's power in
foreign affairs, the Constitution specifically enumerates Congress' powers and duties in relation to foreign affairs. Congress has the power to control the budget, id. art. I, § 8, cl. 1, to
regulate foreign commerce, id. cl. 3, and to define and punish violations of international law.
Id. cl. 10. In addition, Congress alone has the power to declare war. Id. cl. 11.
In connection with Congress' war powers, the Constitution allows Congress to establish,
maintain, and regulate armed forces. Id. cls. 12-16. See generally L. HENKIN, supra note 6, at 37123 (discussing the respective roles of the executive and legislative branches in foreign affairs
and the interaction of the two branches in this area); Spong, Organizingthe Government to Conduct Foreign Poliy: The ConstitutionalQuestions, 61 VA. L. REV. 747 (1975) (discussing findings of
Congress' 1972 Commission on the Organization of the Government for the Conduct of Foreign Policy).
8. See, e.g., Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 697
(1976) (act of state doctrine prevents adjudication of legality of foreign sovereign's conduct);
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 424-25 (1964) (act of state doctrine
precludes adjudication of foreign sovereign's acts); Oetjen v. Central Leather Co., 246 U.S.
297, 302 (1918) (courts cannot review cases involving sovereign acts because this review is for
legislative and executive branches).
9. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 424-25 (1964); see also Alfred
1984]
FOREIGN CORRUPT PRACTICES
205
a prudential rule 10 that is premised primarily on the concept of separation of powers, which is a balance of the allocation of power between the coordinate branches of government." Although classic
application of the act of state doctrine compelled abstention in all
cases that might implicate the acts of a foreign sovereign, 12 modern
judicial treatment of the doctrine has favored the application of a
flexible balancing approach' 3 to determine when the doctrine
should apply. Courts recognize that overriding concerns may demand exceptions to the doctrine that permit courts to adjudicate
4
claims without frustrating the purposes of the doctrine.'
Because of post-Watergate Securities and Exchange Commission
(SEC or Commission) disclosures that an alarming number of
American corporations were involved in the practice of international
bribery, ' 5 some courts have considered whether an exception to the
Dunhill of London, Inc. v, Republic of Cuba, 425 U.S. 682, 697-98 (1976) (courts cannot
adjudicate claims premised on validity of foreign sovereign's conduct); Oetjen v. Central
Leather Co., 246 U.S. 297, 302 (1918) (courts cannot review cases involving sovereign acts
because conduct of foreign governments is left to executive and legislative branches of government); Hunt v. Mobil Oil Corp., 550 F.2d 68, 73 (2d Cir. 1977) (courts cannot inquire into
validity of sovereign's public acts), cert. denied, 434 U.S. 984 (1978); Occidental Petroleum
Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92, 109 (C.D. Cal. 1971) (courts cannot inquire
into validity of sovereign's conduct), affidmem., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S.
950 (1972). For a discussion of the act of state doctrine, see infra notes 25-67 and accompanying text.
10. Neither the Constitution nor the existing body of international law mandate the act
of state doctrine. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 421 (1964). For a
discussion of the basis of the act of state doctrine, see infra notes 34-39 and accompanying
text.
11. See, e.g., United States v. Nixon, 418 U.S. 683, 703-04 (1974) (separation of powers
necessary for tripartite system of government); Myers v. United States, 272 U.S. 252, 291
(1926) (Brandeis, J., dissenting) (doctrine of separation of powers requires each branch of
government to cooperate and not act with complete autonomy).
12. Underhill v. Hernandez, 168 U.S. 250, 252 (1897). For a discussion of the origins of
the act of state doctrine in American law and U.S. courts' early application of the doctrine, see
infra notes 25-29 and accompanying text.
13. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964). For a discussion of
the balancing approach that the Court in Sabbatino adopted, see infra notes 41-42 and accompanying text.
14. See infra notes 70-86 and accompanying text (discussing exceptions to act of state
doctrine).
15.
SECURITIES AND EXCHANGE COMM'N, REPORT ON QUESTIONABLE AND ILLEGAL CORPO-
RATE PAYMENTS AND PRACTICES, 94th Cong., 2d Sess. I (Comm. Print 1976) (submitted to the
Senate Comm. on Banking, Housing and Urban Affairs) [hereinafter cited as SEC REPORT].
The SEC investigations ultimately revealed that bribery of foreign officials was a routine business practice for over 300 American companies, including many of the largest, most widely
held public corporations. S. REP. No. 114, 95th Cong., 1st Sess. 3, reprintedin 1977 U.S. CODE
CONG. & AD. NEws 4098, 4099; see also SEC v. Dresser Indus., 628 F.2d 1368, 1371 (D.C. Cir.)
(illegal and questionable payments emerged as major problem in early 1970's), cert. denied,
449 U.S. 993 (1980); Wall St.J., Sept. 16, 1976, at 7, col. 1 (by mid-September 1976 more
than 200 firms had admitted to making illegal payments); cf Sedco Int'l v. Cory, 683 F.2d
1201, 1210 (8th Cir.) (director of government department conditioned granting of oil concession on $1.5 million payment), cert. denied, 459 U.S. 1017 (1982); Security Bancorp v. Board of
Governors, 655 F.2d 164, 165 (9th Cir. 1980) (majority shareholder of bank, who held 977%of
shares, aided American corporations in making payments to foreign officials in 1970's), va-
206
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
doctrine exists in cases involving corruption.' 6 This judicial trend
initially coincided with Congress' enactment of the Foreign Corrupt
Practices Act of 1977 (FCPA or Act).' 7 The Act severely proscribes
all corporate payments to foreign officials for the purpose of inducing preferential treatment in business.' 8 It represents Congress'
view that international bribery is detrimental both to the domestic
business economy and to American foreign policy objectives.' 9
Advocates of a corruption exception to the act of state doctrine
maintain that the FCPA supports such an exception because the Act
not only evidences Congress' intention to stop international corporate bribery, but also exhibits Congress' confidence in the courts'
ability to hear claims involving these corrupt transactions. 20 The
United States Court of Appeals for the Ninth Circuit, in Clayco Petrocated, 452 U.S. 1118 (1981). See generally Proxmire, The Foreign PayofLaw is a Necessity, N.Y.
Times, Feb. 5, 1978, at F16, col. 3 (expressing approval of antibribery law as good for American business interests).
Congress also learned of corporate bribery through its own investigations of guaranteed
loans that the government had granted to Lockheed Aircraft Corp. Oversight on the Lockheed
Loan Guarantee: Hearings Before Senate Comm. on Banking, Housing and Urban Affairs, 94th Cong.,
2d Sess. 77 (1976); see also Wall St.J., Oct. 22, 1975, at 4, col. 2 (Lockheed admitted making
under-the-table payments to foreign officials); cf Gaines v. Haughton, 645 F.2d 761, 765 (9th
Cir. 1981) (from 1961 to 1975 Lockheed Aircraft Corp. paid between $30-38 million to foreign governments and officials in connection with sales of Lockheed aircraft and equipment).
16. See Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9th
Cir. 1983) (court refused to apply exception to act of state doctrine in corruption case between private parties), cert. denied, 104 S. Ct. 703 (1984); Compania de Gas de Nuevo Laredo,
S.A. v. Entex, Inc., 686 F.2d 322, 326 (5th Cir. 1982) (court declined to address whether act of
state doctrine applies to private party corruption cases), cert. denied, 460 U.S. 1041 (1983);
Hunt v. Mobil Oil Corp., 550 F.2d 68, 79 (2d Cir. 1977) (court decided instant case inappropriate for addressing application of doctrine to commercial bribery), cert. denied, 434 U.S. 984
(1978); Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 909-11 (E.D. Mich. 1981)
(court held application of doctrine to commercial corruption inappropriate); Dominicus
Americana Bohio v. Gulf & Western Indus., Inc., 473 F. Supp. 680, 690 (S.D.N.Y. 1979)
(court held doctrine inapplicable to claim of commercial fraud and coercion); see also infra
notes 87-109 and accompanying text (discussing development of common law corruption exception to current application of act of state doctrine).
17. Pub. L. No. 95-213, tit. 1, 91 Star. 1494 (1977) (codified at 15 U.S.C. §§ 78m, 78dd-1,
78dd-2, 78ff (1982)).
18. 15 U.S.C. §§ 78dd-1, 78dd-2 (1982); see also infra notes 140-42 and accompanying
text (discussing FCPA's prohibition ofpayments to government officials to induce preferential
treatment).
The responsibility for enforcement of the Act is placed with the SEC and the Department of
Justice. S. REP. No. 1031, 94th Cong., 2d Sess. 9-10 (1976). For a discussion of the enforcement of the FCPA, see infra notes 155-63 and accompanying text.
19. See infra notes 121-24 and accompanying text (discussing congressional determination that bribery is detrimental to American business).
20. See Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 408 (9th
Cir. 1983) (plaintiff argued that FCPA enactment created exception to act of state doctrine),
cert. denied, 104 S. Ct. 703 (1984); Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 90910 (E.D. Mich. 1981) (court independently raised issue and found that FCPA created exception to act of state doctrine); see also Note, Sherman Act Jurisdiction and the Acts of Foreign Sovereigns, 77 COLUM. L. REV. 1247, 1261 (1977) (act of state doctrine should not bar claims
involving anticompetitive conspiracies abroad).
19841
FOREIGN CORRUPT PRACTICES
207
leum Corp. v. Occidental Petroleum Corp.,21 was the first court of appeals
to consider whether the FCPA creates a corruption exception to the
act of state doctrine.2 2 In Clayco the court declined to create a corruption exception to the act of state doctrine because the suit was a
private action. 23 The court held that although the act of state doctrine does not preclude courts from hearing government enforcement actions under the FCPA, the doctrine does prevent courts
from adjudicating private suits that implicate, through a scenario of
24
international bribery, the validity of a sovereign's conduct.
This Comment interprets the Ninth Circuit's decision in Clayco to
support the appropriateness of creating a corruption exception to
the act of state doctrine. Part I traces the history and purposes of
the act of state doctrine and delineates its parameters. Part II addresses the FCPA, examining both its purpose and relevance to
United States foreign diplomacy. Part III discusses Clayco and the
implications that it has for the future development of a corruption
exception. This section analyzes the FCPA within the framework of
the act of state doctrine. In addition, Part III analyzes the propriety
of an exception to the doctrine in private suits against defendant
corporations that the United States Department ofJustice has previously prosecuted for violations of the FCPA. Finally, Part IV suggests methods to aid courts in establishing a corruption exception
that is consistent with the objectives of the act of state doctrine.
I.
A.
ACT OF STATE DOCTRINE
Origins and Development: The Judicial Trendfrom Abstention to
Balancing in Expropriation Cases
The act of state doctrine originated in the 1897 case of Underhillv.
Hernandez.25 In Underhill a unanimous United States Supreme Court
held that American courts could not rule on acts that a sovereign
had undertaken in the sovereign's own territory. 26 The Court ex21. 712 F.2d 404 (9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
22. Id. at 408 (court noted that case was one of first impression as to issue of FCPA's
creation of corruption exception of act of state doctrine).
23. Id. at 409.
24. Id.
25. 168 U.S. 250 (1897). Plaintiff Underhill maintained a waterworks system in Bolivar,
Venezuela. Id. at 251. Underhill attempted to leave Bolivar after revolutionaries took over the
city in 1892. Id. The military commander of the victorious revolutionaries forced Underhill
to remain and supply Bolivar with water. Id. Subsequently, Underhill brought suit in the Eastern District of New York for false imprisonment and assault and battery. Id.
26. Id. The Court espoused the following principle, which became the foundation for
the act of state doctrine: "Every sovereign State is bound to respect the independence of
every other sovereign State, and the courts of one country will not sit in judgment on the acts
of the government of another done within its own territory." Id. A number of commentators
208
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
plained that the doctrine's basis lay in principles of sovereign immunity and international comity. 2 7 In decisions following Underhill,
courts continued to suggest that these principles formed the foundation of the act of state doctrine. 28 As a result of the broad holding
in Underhill, courts consistently declined to hear cases that required
29
judicial examination of the validity of sovereign acts.
The modern trend in act of state cases has been to move away
from an absolute requirement ofjudicial abstention in all cases involving sovereign acts and toward the use of a balancing test to determine whether application of the doctrine is appropriate.3 0 The
Supreme Court established this modern approach in 1964 in Banco
Nacionalde Cuba v. Sabbatino.3 1 Sabbalino involved the Castro regime's
expropriation of the assets of an American-owned corporation in
Cuba.3 2 The Court considered whether the act of state doctrine
should apply to an expropriation by a sovereign that violated interhave argued that this language does not reflect the holding of Underhill, but rather represents
mere dicta. See, e.g., Zander, The Act of State Doctrine, 53 AM.J. INT'L L. 826, 826, 830 (1959)
(arguing that Court only held individuals immune from suit in foreign tribunals for acts done
in exercise of governmental authority as agents of that government); Note, Rehabilitationand
Exoneration ofthe Act of State Doctrine, 12 N.Y.U.J. INT'L L. & POL. 599, 602-03 (1980) (arguing
that quote is dicta in light of Court's holding that de facto government, rather than true sovereignty, existed).
27. Underhill v. Hernandez, 168 U:S. 250, 253 (1897).
28. See, e.g., Ricaud v. American Metal Co., 246 U.S. 304, 309 (1918) (act of state doctrine based on international comity); Oetjen v. Central Leather Co., 246 U.S. 297, 303-04
(1918) (act of state doctrine helps preserve amicable relations between governments and
peace among nations); American Banana Co. v. United Fruit Co., 213 U.S. 347, 352 (1909)
(act of state doctrine compelled by comity of nations and sovereign authority).
29. Ricaud v. American Metal Co., 246 U.S. 304, 309 (1918) (courts will not inquire into
legality of sovereign's acts committed within its boundaries); Oetjen v. Central Leather Co.,
246 U.S. 297, 303 (1918) (judicial inquiry barred for claims based on acts of foreign sovereigu). Sovereign acts included all "acts of the government." Underhill v. Hernandez, 168
U.S. 250, 252 (1897). Courts later modified the definition of sovereign acts to include only
those acts that fell within the traditional roles of a sovereign. See infra notes 54-55 and accompanying text (discussing scope of acts considered sovereign acts).
30. See Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964) (refusing per se
application of doctrine and applying balancing test instead); Compania de Gas de Nuevo
Laredo, S.A. v. Entex, Inc., 686 F.2d 322, 325-26 (5th Cir. 1982) (balancing competing interests to determine whether court's inquiry into sovereign acts would have adverse effect on
relations between U.S. and Mexico), cert. denied, 460 U.S. 1041 (1983); Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896,901-06 (E.D. Mich. 1981) (balancing foreign policy considerations). But see Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 704-06
(1976) (majority favoring strict application of act of state doctrine); Hunt v. Mobil Oil Corp.,
550 F.2d 68, 73 (2d Cir. 1977) (relying on strict definitional approach of early act of state
decisions), cert. denied, 434 U.S. 984 (1978). See generally NoteJudicialBalancingof Foreign Policy
Considerations: Comity and Errors Under the Act of State Doctrine, 35 STAN. L. REv. 327, 333-41
(1983) (suggesting that no clear balancing test exists to guide courts balancing foreign policy
considerations). For a discussion of the use of balancing tests in relation to extraterritorial
jurisdiction in antitrust cases, see infra note 53 and accompanying text.
31. 376 U.S. 398 (1964).
32. Id. at 401-06. Cuba expropriated the property in retaliation to President Eisenhower's decision to reduce the sugar import quota for Cuba. Id. at 401.
1984]
FOREIGN CORRUPT PRACTICES
209
national law. 3 3 In its discussion of the basis of the act of state doctrine, the Court rejected the traditional view espoused in Underhill
that the "inherent nature of sovereign authority" 34 or the rules of
international law compelled application of the doctrine. 35 Instead,
the Court ascertained that the separation of powers inherent in the
Constitution, which demands a careful distribution of authority between the respective branches of government, supports the doctrine.3 6 Specifically, the Court explained, the Constitution allocates
authority over foreign affairs to the executive and legislative
branches. 3 7 Courts' hearing cases involving sovereign conduct,
therefore, could thwart this basic premise of American law by allowing the judiciary to interfere with foreign policy.3 8 Despite this
potential danger ofjudicial interference, the Court determined that
the language of the Constitution does not require the judiciary to
invoke the act of state doctrine in all cases involving acts of foreign
sovereigns. 39 The Court concluded that the purposes of the act of
state doctrine would be best promoted by the use of a flexible balin a
ancing approach to determine whether to invoke the doctrine
40
particular case, rather than by strict judicial abstention.
The Sabbatino balancing test includes consideration of the extent
to which an area of international law has been codified 4 and the
33. Id. at 406-08. The trial court had concluded that the Cuban Government's expropriation violated international law on three separate grounds. See id. at 406-07. First, the taking
was motivated by a retaliatory purpose, rather than a public purpose. Id. at 407. Second, the
Cuban Government failed to pay adequate compensation for the expropriated property. Id.
Third, the Cuban Government discriminated against Americans by expropriating only the
property of American nationals. Id.
34. Id. at 421 (1964) (citations omitted); see also Williams v. Curtiss-Wright Corp., 694
F.2d 300, 303 (3d Cir. 1982) (rationale for act of state doctrine has shifted from inherent
nature of sovereign authority and international law to interest in preserving separation of
powers).
35. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 421 (1964).
36. Id. at 423; see also supra notes 6-7 (discussing separate powers of each branch of U.S.
Government in matters of foreign affairs).
37. See supra notes 6-7 and accompanying text (discussing broad constitutional powers of
executive and legislative branches over foreign affairs as compared to limited role of
judiciary).
38. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 427-28 (1964).
39. Id. at 423 (text of Constitution does not irrevocably remove from judiciary capacity
to review validity of foreign acts of state); see also id. at 428 (act of state doctrine is "principle
of decision" not compelled by Constitution or international law).
40. Id. at 428. Although the Court emphasized the flexibility of this approach, the outcome of the balance arguably is weighted against adjudication. See id. at 467 (White, J., dissenting); Note, supra note 30, at 334 n.24 (Sabbatino test will generally weigh in favor of
invoking act of state doctrine). In expropriation cases, this outcome is readily apparent. See
Note, supra note 26, at 612 (noting that expropriation cases deal with ideological question of
determining ownership of a nation's means of production, thus skewing balance toward application of act of state doctrine).
41. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964) (more appropriate
for courts to hear case when greater degree of codification or consensus exists on particular
210
THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:203
extent to which a court's decision regarding a particular aspect of
international law would affect the sensitive nature of United States
foreign relations. 4 2 In Sabbatino the Court held that these factors
weighed against adjudication. 43 First, international law provided
the Court with little guidance concerning the rights of those whose
property a sovereign state had expropriated. 44 Second, the Court
emphasized that discussion of the expropriation would have raised a
sensitive ideological debate concerning private versus state ownership of a nation's means of production. 4 5 Judicial action on this issue, therefore, could result in injury to foreign relations and foreign
policy objectives. 4 6 On invoking the act of state doctrine, the Court
stated that its holding applied to all expropriations, even those that
47
violated international law.
Congress, concerned that the decision in Sabbatino would preclude American victims of illegal expropriations from obtaining any
redress, quickly responded to the Court's holding by enacting an
amendment to the Foreign Assistance Act of 1964,48 which regulates U.S. aid to foreign nations. The amendment, known as the
Hickenlooper Amendment, directs courts to forego application of
the act of state doctrine in cases stemming from expropriations that
violate international law. 4 9 Although the amendment creates a prearea of international law because court will be applying principle of law rather than creating
one).
42. Id. (more appropriate for courts to hear case when issue is relatively unimportant to
U.S. foreign relations).
43. Id.
44. Id. at 428-30 (rights of victims of expropriated property vary greatly from nation to
nation).
45. Id. at 429-30.
46. Id. at 430.
47. Id. at 427-37. But see id. at 439-72 (White, J., dissenting) (discussing need for exception to doctrine when violations of international law occur).
48. Pub. L. No. 88-633, § 301(d), 78 Stat. 1013 (codified as amended at 22 U.S.C.
§ 2370(e)(2) (1982));see S. REP. No. 1188,88th Cong., 2d Sess. 24, reprinted in 1964 U.S. CODE
CONG. & AD. NEws 3829, 3852 (amendment intended to reverse part of holding in Sabbalino
that relates to expropriations in violation of international law).
49. 22 U.S.C. § 2370(e)(2) (1982). The amendment reads as follows:
Notwithstanding any other provision of law, no court in the United States shall decline on the ground of the federal act of state doctrine to make a determination on
the merits giving effect to the principles of international law in a case in which a claim
of title or other rights to property is asserted by any party including a foreign state
(or a party claiming through such state) based upon (or traced through) a confiscation or other taking afterJanuary 1, 1959, by an act of state in violation of the principles of international law, including the principles of compensation and the other
standards set out in this subsection: Provided, That this subparagraph shall not be
applicable (1) in any case in which an act of a foreign state is not contrary to international law or with respect to a claim of title or other right to property acquired pursuant to an irrevocable letter of credit of not more than 180 days duration issued in
good faith prior to the time of the confiscation or other taking, or (2) in any case with
respect to which the President determines that application of the act of state doctrine
1984]
FOREIGN CORRUPT PRACTICES
211
sumption that courts will adjudicate these claims, it allows the President to waive the amendment's provisions whenever he determines
that foreign policy interests compel application of the act of state
doctrine. 50 The amendment, therefore, provides clear guidance for
the courts in determining when they should invoke the doctrine. 5 1
B.
The Act of State Doctrine in Antitrust Suits
Although the act of state doctrine is most frequently employed in
expropriation cases such as Sabbatino,5 2 it has become equally important in the area of international antitrust. 53 In the context of the
act of state doctrine, antitrust suits differ from expropriation cases
in two ways. First, in suits involving expropriation, the act of expropriation is a sovereign act by definition, 54 but in suits involving alleged anticompetitive conduct, the sovereign may or may not have
been acting in a sovereign capacity. 55 The plaintiffs in these suits,
is required in that particular case by the foreign policy interests of the United States
and a suggestion to this effect is filed on his behalf in that case with the court.
Id.
Judicial interpretation of the amendment has been narrow. See, e.g., Occidental Petroleum
Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92, 111-12 (C.D. Cal. 1971) (application restricted to claims of expropriation of property), affid mer., 461 F.2d 1261 (9th Cir.), cert. denied,
409 U.S. 950 (1972); French v. Banco Nacional de Cuba, 23 N.Y.2d 46, 57-63, 242 N.E.2d
704, 712-15, 295 N.Y.S.2d 433, 444-49 (1968) (claim must be for confiscated property to fall
within ambit of amendment).
50. 22 U.S.C. § 2370(e)(2) (1982).
51. See S. REP. No. 1188, 88th Cong., 2d Sess. 24 (amendment creates presumption that
act of state doctrine does not bar adjudication in expropriation cases), reprintedin 1964 U.S.
CODE CONG. & AD. NEws 3829, 3852.
52. See supra note 1 and accompanying text (noting cases in which American companies
sought compensation for expropriated property).
53. See supra note 2 and accompanying text (noting cases in which American companies
have sought relief for anticompetitive conduct).
In addition to issues concerning the act of state doctrine, antitrust suits may also raise jurisdictional questions regarding the extraterritorial application of United States antitrust law.
See Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 605-15 (9th Cir. 1976) (turning to
jurisdictional questions after concluding that acts involved were not sovereign acts). Some
courts have established balancing tests in this context to determine not only whetherjursidiction exists, but also whether the court should exercise its jurisdiction. These courts have
balanced several factors, including the degree of conflict with foreign law or policy, the nationalities of the parties, the availability of remedies in the foreign country, and the existence
of a treaty addressing the issue. See Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d
1287, 1297-98 (3d Cir. 1979) (establishing detailed ten-factor test to determine whetherjurisdiction should be exercised); Timberlane Lumber Co. v. Bank of Am., 549 F.2d at 613-15
(establishing three-part test to determine whetherjurisdiction existed). These tests exhibit the
same concerns regarding thejudiciary's role in foreign policy as those exhibited in act of state
decisions. See id. at 613.
At least one court has applied the factors used in the Timberlane and Mannington tests to
determine whether to invoke the act of state doctrine. See Sage Int'l Ltd. v. Cadillac Gage Co.,
534 F. Supp. 896, 905-11 (E.D. Mich. 1981) (holding that multifactor balancing tests of
Tinberlane and Manninglon preclude act of state doctrine as defense).
54. See RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAW OF THE UNITED STATES § 41
comment d (1965) (typical "act of state" is state's taking of property within its own territory).
55. Compare Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1293-94 (3d
212
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
usually injured competitors, typically allege that a defendant corporation and a foreign sovereign conspired to prevent competition primarily through the action of the sovereign. 56 If the activity involved
is a sovereign act, courts may invoke the act of state doctrine to bar
57
inquiry into the act's validity.
Second, the parties involved in expropriation and antitrust suits
differ. Because only a sovereign or its agent has the authority to
expropriate private property, 5 8 the claims of victims of expropriated
assets will focus on the sovereign conduct. 5 9 Claims in antitrust,
however, may allege a conspiracy between private parties alone. 60
Cir. 1979) (issuance of patents by foreign sovereign not considered sovereign act) and
Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 608 (1976) (judicial proceedings initiated by private parties simply to thwart competition in Honduran lumber business did not
constitute act of state) with Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d
404, 407 (9th Cir. 1983) (sovereign decision authorizing exploitation of important national
resources considered act of state), cert. denied, 104 S. Ct. 703 (1984) and Occidental Petroleum
Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92, 107-11 (C.D. Cal. 1971) (sovereign decrees
asserting territorial claims over offshore waters in order to deprive conspiring company's
competitor of offshore concession considered act of state), a]Jd mern., 461 F.2d 1261 (9th
Cir.), cert. denied, 409 U.S. 950 (1972).
To determine whether the acts that furthered an anticompetitive scheme were sovereign
acts, courts have looked for guidance to the Restatement of Foreign Relations Law of the
United States. See, e.g., Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1293 (3d
Cir. 1979) (courts must analyze nature of questioned conduct and effect upon parties in addition to appraising sovereign's role) (citing RESTATEMENT (SECOND) OF FOREIGN REt.LATIONS
LAW § 41 comment d (1965)); Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 607-08
(9th Cir. 1976) (act of state doctrine only protects sovereign acts that effectuate public interest) (citing RESTATEMENT (SECOND) OF FOREIGN RELATIONS LAw § 41 comment d (1965)).
56. See, e.g., Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 898 (E.D. Mich. 1981)
(plaintiff alleged antitrust conspiracy between defendant and foreign sales agents in armored
car market); General Aircraft Corp. v. Air Am., Inc., 482 F. Supp. 3, 5 (D.D.C. 1979) (plaintiff
alleged that defendant influenced purchasing decisions of foreign government to further antitrust conspiracy in aircraft equipment industry); Dominicus Americana Bohio v. Gulf& Western, Inc., 473 F. Supp. 680, 685 (S.D.N.Y. 1979) (plaintiff alleged that defendant influenced
foreign government as part of antitrust conspiracy in tourist industry). For a discussion of
some courts' view that cases alleging a corporate anticompetitive conspiracy between a corporation and a foreign sovereign give rise to a corruption exception to the act of state doctrine,
see infra notes 93-109 and accompanying text.
57. See, e.g., Hunt v. Mobil Oil Corp., 550 F.2d 68, 73 (2d Cir. 1977) (court invoked act of
state doctrine to preclude inquiry into Libya's nationalization of plaintiff's property), cerl. denied, 434 U.S. 984 (1978); Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F. Supp.
92, 113 (C.D. Cal. 1971) (court invoked act of state doctrine to preclude inquiry into granting
of offshore oil concession), a~ffd mem., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950
(1972).
58. See supra note 54 and accompanying text (expropriation involves sovereign acts by
definition).
59. See, e.g., Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,403 (1964) (focusing on
Cuban government's seizure of assets of sugar firm); Ricaud v. American Metal Co., 246 U.S.
304, 305-06 (1918) (focusing on Mexican government's seizure of lead bullion); Oetjen v.
Central Leather Co., 246 U.S. 297, 299 (1918) (focusing on Mexican government's seizure of
hides).
60. See, e.g., Hunt v. Mobil Oil Corp., 550 F.2d 68, 70 (2d Cir. 1977) (plaintiff alleged
that defendants conspired to maintain their own competitive advantage with Libya), cert. denied, 434 U.S. 984 (1978); General Aircraft Corp. v. Air Am., Inc., 482 F. Supp. 3, 5 (D.D.C.
1979) (defendant's conspired to influence purchasing decisions of foreign government).
1984]
FOREIGN CORRUPT PRACTICES
213
For example, an injured competitor may allege that a defendant corporation procured sovereign action from a foreign state for the purpose of furthering an anticompetitive scheme without revealing the
existence of its conspiracy to the state official. 6 1 Because the sovereign's action in such a situation will have been innocent and, presumably, legal, the validity of its conduct will not require the court's
examination. 62 Nevertheless, some courts have declined to hear
these claims, reasoning that the act of state doctrine prohibits judicial inquiry into the motivation for sovereign action as well as into
63
the validity of such action.
C. Limiting the Act of State Doctrine through the Creation of Exceptions
Since the Court's reformulation of the act of state doctrine in Sabbatino64 and its subsequent modification by the enactment of the
Hickenlooper Amendment, 65 the act of state doctrine has undergone very little alteration in theory or application. 66 Most courts
have acted prudently, conscious of their limited role in matters of
foreign policy and the need to preserve our tripartite system of government. 6 7 Some courts, however, have recognized exceptions to
the doctrine either in situations in which a sovereign is acting in a
61. Hunt v. Mobil Oil Corp., 550 F.2d 68, 75-76 (2d Cir. 1977).
62. Id. The plaintiff asserted that because it did not allege that the sovereign's conduct
was illegal, the court could not invoke the act of state doctrine. Id.
63. See, e.g., id. at 77 (judicial examination of motivation behind sovereign acts inevitably
involves examination of their validity). But see Industrial Inv. Dev. Corp. v. Mitsui & Co., 594
F.2d 48, 55 (5th Cir. 1979) (allowing inquiry into sovereign's motivation if adjudication results in no embarrassment to executive branch), cert. denied, 460 U.S. 1007 (1983); Timberlane
Lumber Co. v. Bank of Am., 549 F.2d 597, 607 (9th Cir. 1976) (advocating balancing approach regarding judicial deference to sovereignty of another nation or motivation of its action). For a discussion of courts' and commentators' criticism of the decision in Hunt, see infra
note 95 and accompanying text.
64. See supra notes 30-47 and accompanying text (discussing balancing test originating in
Sabbatino and its current use in application of act of state doctrine).
65. See supra notes 48-51 and accompanying text (discussing Hickenlooper Amendment
to Foreign Assistance Act of 1964 and its role in narrowing courts' use of act of state
doctrine).
66. Cf Hunt v. Mobil Oil Corp., 550 F.2d 68, 79 (2d Cir. 1977) (declining to modify
doctrine and deferring such a step to Supreme Court), cert. denied, 434 U.S. 984 (1978); Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92, 109-10 (C.D. Cal. 1971)
(citing Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398 (1964), as controlling without
modifying precedent), afd mere., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950 (1972).
But see Comment, The Act of State Doctrine: ,4 Histoy, ofJudicialLimitations and Exceptions, 18 HARV.
INT'L LJ. 677, 680-96 (1977) (discussing judicial dissatisfaction with decision in Sabbatino as
evidenced by creation of exceptions to doctrine).
67. See Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F. Supp. 92, 108-09
(1971) (executive branch has primary competence in foreign affairs), affd mem., 461 F.2d 1261
(9th Cir.), cert. denied, 409 U.S. 950 (1972); cf Hunt v. Mobil Oil Corp., 550 F.2d 68, 77 (2d
Cir. 1977) (act of state doctrine is judicial articulation of separation of powers doctrine), cert.
denied, 434 U.S. 984 (1978). For a discussion of separation of powers and the authority
granted to each branch of government, see supra notes 6-9 and accompanying text.
214
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
nonsovereign capacity, or in cases in which the executive branch has
68
indicated that it favors adjudication of a particular claim.
1.
Commercial activities by the sovereign
Some jurisdictions have recognized an exception to the act of
state doctrine when the sovereign's conduct is essentially commercial in nature. 69 The Supreme Court first suggested the possibility of
this exception in Alfred Dunhill of London, Inc. v. Republic of Cuba.7 0 In
Dunhill the Cuban Government seized the assets of five domestic cigar manufacturers, naming interventors to take control of the business and continue production. 71 The commercial activity
complained of in Dunhill was the Cuban Government's refusal to return erroneous payments. 72 Dunhill, an American importer of cigars, brought suit when Cuba failed to return funds that Dunhill had
mistakenly paid to the Cuban interventors for cigars the importer
had purchased prior to the seizure. 73 Although the Cuban Government argued that its refusal to honor the repayment obligation was
an act of state, 74 the Court concluded that the conduct was nonsovereign and declined to invoke the act of state doctrine. 75 The
Court relied on a letter in which the United States Department of
State announced that it would recognize a sovereign's immunity
only for acts that were public in nature. 76 The four-justice plurality
in Dunhill reasoned that in situations in which a sovereign engaged
in purely commercial activity, it could only be afforded the protec68. See, e.g., Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 682
(1976) (establishing exception for cases in which sovereign's acts are essentially commercial);
Hunt v. Mobil Oil Corp., 550 F.2d 68 (2d Cir. 1977) (recognizing commercial exception);
Bernstein v. N.V. Nederlandsche-Amerikaansche Stoomvaart-Maatschapp j, 210 F.2d 375 (2d
Cir. 1954) (establishing so-called "Bernstein exception" in cases in which U.S. State Department has determined that adjudication is appropriate). For a discussion on the judicial trend
towards recognizing a common-law corruption exception to the act of state doctrine, see infra
notes 87-115 and accompanying text.
69. See, e.g., Northrop Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1048 n.25 (9th
Cir. 1983) (purely commercial activity usually will not trigger act of state doctrine), cert. denied,
104 S. Ct. 156 (1983); Hunt v. Mobil Oil Corp., 550 F.2d 68, 73 (2d Cir. 1977) (political act
not within commercial exception), cert. denied, 434 U.S. 984 (1978).
70. 425 U.S. 682 (1976).
71. Id. at 685.
72. Id. at 684-87.
73. Id.
74. Id. at 687.
75. Id. at 697-98. The Cuban Government was operating a cigar business for profit, an
activity that is not sovereign in nature. Id. at 706.
76. Id. at 698-704. The letter, known as the Tate letter, states that the Department of
State adopted the restrictive theory of sovereign immunity. Id. at 698. This theory does not
recognize a sovereign's immunity for commercial and private activities. Id. The restrictive
theory of sovereign immunity is codified in the Foreign Sovereign Immunities Act. 28 U.S.C.
§ 1605(a)(2) (1982).
1984]
FOREIGN CORRUPT PRACTICES
215
tions granted to private citizens. 7 7 The exception derived from a
consensus in the executive branch that the adjudication of claims
involving the commercial activity of foreign sovereigns would not
78
result in judicial intervention into matters of foreign policy.
Although it was supported only by a plurality of Supreme Court justices, some courts continue to recognize the existence of a commer79
cial exception.
2.
Executive statements permitting adjudication
Courts have also declined to invoke the act of state doctrine when
the Department of State has indicated that the executive branch has
evaluated the foreign policy risks raised by the suit and has determined that adjudication is appropriate.8 0 Courts' refusal to invoke
the doctrine in these circumstances is called the Bernstein exception
to the act of state doctrine, which originated in Bernstein v. N. V. Nederlandsche-Amerikaansche Stoomvaart-Maatschapp. 81 Because the court
in Bernstein recognized that the act of state doctrine is premised on
the need to defer to the executive branch in matters of foreign policy, 8 2 a Department of State letter indicating an interest in adjudicat83
ing the claim compelled the court not to invoke the doctrine.
Although the Bernstein exception reflects the appropriate allocation of authority over foreign affairs among the branches of government,8 4 it creates the potential for the executive branch to abuse its
power. In particular, it allows the executive branch to determine on
77. Alfred Dunhill of London v. Republic of Cuba, 425 U.S. 682, 704 (1976).
78. Id. at 703-06. Because the sovereigns are acting essentially as private citizens would
act, adjudication is "unlikely to touch very sharply on 'national nerves.'" Id. at 704 (quoting
Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964)).
79. See Hunt v. Mobil Oil Corp., 550 F.2d 68, 72-73 (2d Cir. 1977) (court's application of
act of state precluded adjudication of claim), cert. denied, 434 U.S. 984 (1978); cf Northrop
Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1048 n.25 (9th Cir.) (alluding to existence
of commercial exception), cert. denied, 104 S. Ct. 156 (1983); Dominicus Americana Bohio v.
Gulf& Western Indus., Inc., 473 F. Supp. 680, 689-90 (S.D.N.Y. 1979) (alluding to existence
of commercial exception).
80. See Bernstein v. N.V. Nederlandsche-Amerikaansche Stoomvaart-Maatschappij, 210
F.2d 375 (2d Cir. 1954) (court not precluded from determining legality of Nazi official's acts
because executive branch had given permission); see also First Nat'l City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 768 (1972) (although three-judge plurality adopted Bernstein
exception, majority ofjustices did not); cf. Banco Nacional de Cuba v. Sabbatino, 376 U.S.
398, 418-20 (1964) (court refused to rule on Bernstein exception).
81. 210 F.2d 375 (2d Cir. 1954). The plaintiff in Bernstein, a former German national,
sought to recover damages for the loss of property that the Nazi government expropriated
pursuant to antisemetic Nuremberg laws. Id.
82. Id. at 376.
83. Id. The letter indicated that the executive branch did not intend the act of state
doctrine to prevent courts from examining the validity of the act of Nazi officials in cases
stemming from Nazi expropriations. Id.
84. For a discussion of the authority that each branch of government has in relation to
foreign affairs, see supra notes 6-7.
216
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
a case-by-case basis whether courts should hear a particular claim.8 5
Consequently, courts have been reluctant to recognize the Bernstein exception and have limited it to the facts in Bernstein.8 6
3.
Toward a common-law corruption exception
International corporate bribery and the act of state doctrine may
come into conflict when a company alleges that a defendant company has induced a foreign official, through bribery, to undertake a
sovereign act for the benefit of the bribing corporation and to the
detriment of the plaintiff corporation.8 7 Determining whether bribery transpired and whether such bribery caused the plaintiff's injuries may necessitate the examination of sovereign acts.8 8 Because
the act of state doctrine prohibits courts from making inquiries into
the validity of these acts, 8 9 corporations have attempted to persuade
courts to invoke the doctrine in cases involving international corruption, even when a sovereign is not a named defendant. 90 The
primary purpose of the act of state doctrine is to prevent judicial
85. See First Nat'l City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 773 (1972) (Douglas, J., concurring) (executive branch could randomly choose those claims it wanted courts to
adjudicate, thereby making courts dependent on executive determinations); see also L. HENKIN,
supra note 6, at 62-64 (although potential exists for executive branch abuse, executive has
generally left decision to use act of state doctrine to judiciary).
86. See First Nat'l City Bank v. Banco Nacional de Cuba, 406 U.S. 759, 768 (1972)
(although three-justice plurality adopted Bernstein exception, majority ofjustices did not); see
also Note, supra note 26, at 615-23 (discussing courts' recent treatment of the Bernstein
exception).
87. See McManis, Questionable CorporatePayments Abroad: An Antitrust Approach, 86 YALE LJ.
215, 231-39 (1976) (discussing inappropriateness of act of state doctrine in antitrust suits
involving illegal payments).
88. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 407-09 (9th
Cir. 1983). Because so few cases involving international corporate bribery have resulted in
trial, see infra note 119 and accompanying text (discussing SEC's inability to prosecute corporations for corporate bribery prior to FCPA enactment); infra note 162 and accompanying text
(discussing enforcement under FCPA to date), the development of a common-law corruption
exception to the act of state doctrine is extrapolated from cases involving other forms of fraud
and corruption. See, e.g., Hunt v. Mobil Oil Corp., 550 F.2d 68, 77-78 (2d Cir. 1977) (plaintiff
alleged defendant violated Sherman Act, resulting in nationalization of plaintiff's Libyan oilproducing properties); Dominicus Americana Bohio v. Gulf & Western Indus., Inc., 473 F.
Supp. 680, 690 (S.D.N.Y. 1979) (plaintiff alleged defendant corruptly conspired with sovereign to favor defendant's position in tourist industry).
89. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398,428 (1964);seesupra notes 31-51
and accompanying text (discussing current application of act of state doctrine, which involves
balancing several factors to determine when courts should not examine validity of sovereign
acts).
90. See, e.g., Hunt v. Mobil Oil Corp., 550 F.2d 68, 75-76 (2d Cir. 1977) (Libya not
named defendant), cert. denied, 434 U.S. 984 (1978); Occidental Petroleum Corp. v. Buttes Gas
& Oil Co., 331 F. Supp. 92, 107 (1971) (Sharjah, Umm Al Qaywayn, Great Britain, and Iran
not named as defendants), a]d mein., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950
(1972). Moreover, the act of state doctrine can be asserted as a defense by private litigants,
Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1292 (3d Cir. 1979), cert. denied,
454 U.S. 1163 (1982), even when no sovereign is a party to the action. International Ass'n of
Machinists and Aerospace Workers v. OPEC, 649 F.2d 1354, 1359 (9th Cir. 1981).
1984]
FOREIGN CORRUPT PRACTICES
217
interference in matters of foreign policy.91 Some courts have found,
therefore, that when a corporation raises the doctrine merely to
conceal corruption, such as illegal payments to foreign officials, the
corporation is abusing the doctrine and its objectives. 9 2 This potential abuse of the act of state doctrine has led some courts to question
whether application of the doctrine to any case involving interna93
tional corruption is appropriate.
In Hunt v. Mobil Oil Corp., 94 the first case involving the issue, the
United States Court of Appeals for the Second Circuit interpreted
the scope of the act of state doctrine expansively and refused to hear
the plaintiff's claim. 95 The court also declined to address the issue
whether a corruption exception to the doctrine existed. 9 6 Absent
91. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964); Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 607 (9th Cir. 1976).
92. See, e.g., Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 910 n.26 (E.D. Mich.
1981) (corrupt activities of foreign sovereign violate FCPA, and act of state doctrine will not
preclude enforcement of FCPA); Dominicus Americana Bohio v. Gulf& Western Indus., Inc.,
473 F. Supp. 680, 690 (S.D.N.Y. 1979) (act of state doctrine does not apply when sovereign
acts are result of corruption of state officials); see also McManis, supra note 87, at 236-39 (concerns of act of state doctrine inapposite to cases of overseas payments).
93. See, e.g., Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 909-11 (E.D. Mich.
1981) (act of state doctrine does not preclude plaintiffs claims if sovereign acts result from
corruption); Dominicus Americana Bohio v. Gulf & Western Indus., Inc., 473 F. Supp. 680,
690 (S.D.N.Y. 1979) (court may analyze unrepudiated act of state if it resulted from corruption of state officials); cf Compania de Gas de Nuevo Laredo, S.A. v. Entex, Inc., 686 F.2d
322, 326 (5th Cir. 1982) (no exception to act of state doctrine when act of foreign sovereign
occurred in emergency situation), cert. denied, 460 U.S. 1041 (1983); Hunt v. Mobil Oil Corp.,
550 F.2d 68, 79 (2d Cir. 1977) (no exception to doctrine if foreign officials not enticed by
bribes), cert. denied, 434 U.S. 984 (1978).
For a discussion of the FCPA as the basis for a corruption exception to the act of state
doctrine, see infra notes 207-17 and accompanying text.
94. 550 F.2d 68 (2d Cir. 1977), cert. denied, 434 U.S. 984 (1978). In Hunt a Libyan oil
producer brought action against other oil producers for an alleged violation of U.S. antitrust
laws. Id. at 70. The plaintiff alleged that the defendant's conspiracy caused the Libyan government to nationalize its assets. Id. at 71-72. The plaintiff did not question the legality of
the government's actions. Id. at 75.
95. Id. at 79. The court in Hunt extended the act of state doctrine to preclude inquiry
into the motivation of a sovereign's conduct in addition to the traditional preclusion from
inquiry into the validity of such conduct. Id. at 77. Courts and commentators have criticized
the decision in Hunt for its overly restrictive application of the act of state doctrine. See, e.g.,
Industrial Inv. Dev. Corp. v. Mitsui & Co., 594 F.2d 48, 55 (5th Cir. 1979) (rejecting overly
broad language of decision in Hunt); Rasoulzadeh v. Associated Press, 574 F. Supp. 854, 85660 (S.D.N.Y. 1983) (rejecting decision in Hunt and advocating a flexible case-by-case approach to act of state doctrine); Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 901-05
(E.D. Mich. 1981) (rejecting Hunt in favor of more flexible approach of Timberlane Lumber
Co. v. Bank of Am., 549 F.2d 597 (9th Cir. 1976)); Note, supra note 20, at 1259-65 (noting that
approach in Hunt effectively shielded defendant corporations from liability for Hunt's injuries). In addition, commentators have stated that the decision in Hunt enables defendants to
avoid antitrust liability by implicating sovereign acts in their conspiracy. See Note, The Act of
State Doctrine: Antitrust Conspiracies to Induce Foreign Sovereign Acts, 10 N.Y.U. J. INT'L L. & POL.
495, 519-32 (1978) (noting that approach in Hunt is too restrictive and suggesting flexible
balancing in antitrust suits).
96. Hunt v. Mobil Oil Corp., 550 F.2d 68, 79 (2d Cir. 1977), cert. denied, 434 U.S. 984
(1978).
218
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
the plaintiff's allegations of corruption on the part of the foreign
government, the court summarily concluded that the case did not
provide an appropriate opportunity to discuss the existence of a corruption exception.9 7 The court, however, left unanswered whether
it would recognize an exception if the plaintiff had alleged that both
the defendant corporation and the sovereign had acted corruptly.98
Courts in subsequent cases have followed the Second Circuit's
ruling and have required complaining parties to allege corruption
by the sovereign in addition to corruption by the defendant corporation before they will address the existence of a corruption exception to the act of state doctrine.9 9 The United States District Court
for the Eastern District of Michigan, for example, stated explicitly
that allegations calling for review of charges of sovereign corruption
could give the court an opportunity to recognize a corruption exception. 10 0 The court concluded that the purpose of the act of state
doctrine was not to protect the corrupt activity of foreign sovereigns.' 0 ' Indeed, when acting corruptly, a sovereign does not act in
its traditional sovereign capacity.' 02 Because the plaintiff had failed
to allege sovereign corruption, however, the court declined discus03
sion of a possible corruption exception.'
More recently, two courts have interpreted Hunt to reach different
97. Id. The plaintiffdid not allege that illegal payments had induced the Libyan Government to nationalize its assets. Id. The court considered Libya an innocent dupe in the defendants' domestic conspiracy. Id
98. Id. One commentator has suggested that the court's willingness to consider an exception, if the plaintiff had alleged sovereign corruption, evidences the court's recognition of
the shortcomings of its restrictive approach. Note, supra note 20, at 1261-62.
99. See, e.g., Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 910 (E.D. Mich. 1981)
(act of state doctrine does not preclude antitrust litigation if plaintiff alleges corruption by
foreign sovereign); Dominicus Americana Bohio v. Gulf& Western Indus., Inc., 473 F. Supp.
680, 690 (S.D.N.Y. 1979) (act of state doctrine not applicable because government actions
alleged to be procured by corruption); cf Compania de Gas de Nuevo Laredo, S.A. v. Entex,
Inc., 686 F.2d 322, 326 (5th Cir. 1982) (not stated by court but inferred from treatment of
facts), cert. denied, 460 U.S. 1041 (1983).
100. Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 910 (E.D. Mich. 1981). The
plaintiff, a manufacturer of armored cars, alleged that the defendant conspired with domestic
and foreign sales agents to exclude plaintiffs from the market. Id. at 898. The defendant and
the sales agents had agreed that the defendant would receive illegal kickbacks from sales of
the defendant's cars. Id. Although the plaintiff did not allege a conspiracy on the part of the
government itself, the sovereign's acts were implicated because government officials made all
of the purchasing decisions. Id.
101. Id at 910.
102. Id. To support this proposition, the court cited the FCPA and stated that to allow the
act of state doctrine to protect a sovereign's corrupt activity would violate the "spirit" of the
Act. Id. In addition, the court stated that the Act itself subjugates act of state concerns to
interests in preventing foreign corrupt practices. Id. at 910 n.26.
103. Id. at 910. The court stated that because the plaintiff did not allege direct wrongdoing by the foreign sovereign, the court did not have to determine whether a corruption exception to the act of state doctrine existed. Id.
1984]
FOREIGN CORRUPT PRACTICES
219
results. 10 4 The United States Court of Appeals for the Fifth Circuit
relied on Hunt to support its decision not to address the existence of
a corruption exception to the act of state doctrine.10 5 Although the
court cited Hunt, it gave little emphasis to the Second Circuit's suggestion that in situations in which a plaintiff alleges sovereign corruption, an exception to the act of state doctrine may exist.' 0 6 The
United States District Court for the Southern District of New York,
however, relied on this aspect of the Second Circuit's decision in
Hunt to preclude application of the act of state doctrine during the
prediscovery stage of an antitrust suit.1 0 7 Although the plaintiff had
not alleged extensive corruption by the sovereign, the court deemed
general allegations of fraud and corruption in the prediscovery
stage of litigation sufficient to preclude application of the doctrine
and dismissal of the complaint.' 0 8 Ultimately, therefore, courts considering the appropriateness of a corruption exception to the act of
state doctrine, at least implicitly, have required allegations of corrupt activity by the sovereign before they have addressed the
issue. 109
Judicial reluctance to find exceptions to the act of state doctrine
may be attributed to courts' hesitancy to act in areas of foreign policy absent guidance from Congress or the President. Legislation,
104. See Compania de Gas de Nuevo Laredo, S.A. v. Entex, Inc., 686 F.2d 322, 326 (5th
Cir. 1982) (avoided addressing corruption exception to act of state doctrine), cert. denied, 460
U.S. 1041 (1983); Dominicus Americana Bohio v. Gulf & Western Indus., Inc., 473 F. Supp.
680, 690 (S.D.N.Y. 1979) (court did not apply act of state doctrine after general allegations of
corruption).
105. Compania de Gas de Nuevo Laredo, S.A. v. Entex, Inc., 686 F.2d 322, 326 (5th Cir.
1982), cert. denied, 460 U.S. 1041 (1983). The court in Entex stated that the Second Circuit in
Hunt had refused to address the merits of the corruption exception issues and, therefore, it
too would not discuss the exception. Id.
106. Id. The plaintiff in Entex argued that the defendants were involved in a conspiracy.
Id. at 325. Although the court did not address whether the plaintiff also alleged sovereign
corruption, the court's treatment of the facts suggests that there was no sovereign corruption.
First, the court noted that the Mexican Government was not a named defendant in the suit. Id.
Second, the court indicated that the Mexican Government's expropriation of the gas company
was undertaken in an emergency to ensure that Nuevo Laredo would continue to receive its
supply of natural gas. Id. at 326.
107. See Dominicus Americana Bohio v. Gulf & Western Indus., Inc., 473 F. Supp. 680,
690 (S.D.N.Y. 1979) (plaintiffs alleged that defendants improperly influenced officials of the
Dominican Republic to take actions that were detrimental to plaintiff's operation as a tourist
facility). In rejecting the defendant's motion to dismiss the complaint, the court concluded
that allegations that defendants procured government actions by fraud and coercion would
suffice to preclude application of the act of state doctrine. Id.
108. Id. For a discussion of allegations required in suits alleging sovereign corruption,
see infra notes 252-65 and accompanying text.
109. See supra notes 99-108 and accompanying text (discussing allegation of corruption by
foreign sovereign as well as by defendant as a prerequisite to court's consideration of act of
state doctrine corruption exception).
220
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
such as the Hickenlooper Amendment, 110 that explicitly states those
situations in which courts should refuse to invoke the act of state
doctrine is an ideal form of guidance. Absent legislation that explic-
itly addresses the act of state doctrine, courts have exhibited a preference for seeking guidance from the executive branch of
government before establishing exceptions to the doctrine."' The
rationale underlying this preference is that the executive and legislative branches are in the best position to set foreign policy objectives. 112 The Foreign Corrupt Practices Act, 113 for example,
represents a congressional directive for the prosecution of American corporations that make illegal payments to foreign officials to
obtain preferential treatment in business. 114 When prosecution
under the FCPA results in a finding that bribery did occur, one court
has suggested that the Act may create an exception to the act of
state doctrine allowing adjudication of subsequent suits stemming
from the same illegal payment. 115
II.
THE FOREIGN CORRUPT PRACTICES ACT OF
1977
The Foreign Corrupt Practices Act of 1977116 represents Congress' response to the discovery that American corporations were
engaged in widespread bribery of foreign officials to secure business
abroad. 117 In the early 1970's, SEC investigations, originally di110. See supra notes 48-51 and accompanying text (discussing provisions and background
of Hickenlooper Amendment).
111. See supra note 76 and accompanying text (discussing basis of commercial exception as
executive branch's recognition of restrictive theory of sovereign immunity); supra note 83 and
accompanying text (discussing Bernstein exception, which is actual executive branch statement of guidance).
112. See supra notes 6-7 and accompanying text (discussing scope of foreign affairs authority of executive and legislative branches).
113. 15 U.S.C. §§ 78m, 78dd-1, 78dd-2, 78ff (1982).
114. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 408 (9th Cir.
1983) (FCPA represents legislative judgment that foreign relations will be improved by strict
antibribery statute), cert. denied, 104 S. Ct. 703 (1984). For a discussion of the background and
the provisions of the FCPA, see infra notes 116-64 and accompanying text.
115. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404,409, 409 n,6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
116. 15 U.S.C. §§ 78m, 78dd-1, 78dd-2, 78ff (1982). The Senate entertained bills similar
to the FCPA as early as March 1976. See, e.g., Foreign and CorporateBribes: Hearings on S. 3133
Before the Senate Comm. on Banking, Housing and Urban Affairs, 94th Cong., 2d Sess. 2 (1976); S.
3379, 94th Cong., 2d Sess., 122 CONG. REC. 12,604-07 (1976); ProhibitingBribes to Foreign Officials: Hearings on S. 3133, S. 3379 and S. 3418 Before the Senate Comm. on Banking, Housing and
Urban Affairs, 94th Cong., 2d Sess., 36 (1976). The present Act was introduced as S. 305 by
Senators Proxmire and Williams on January 18, 1977. S. REP. No. 114, 95th Cong., 1st Sess.
1-2, reprintedin 1977 U.S. CODE CONG. & AD. NEws 4098, 4099. Title I of this bill was identical to a previous bill, S. 3664, that the Senate passed in September 1976. Id. Both the Senate
and the House passed S. 305 in December of 1977. Id.
1171 S. REP. No. 114, 95th Cong., 1st Sess. 1-2, reprintedin 1977 U.S. Con CONG. & AD.
NEws 4098, 4099; see also supra note 15 and accompanying text (SEC investigations revealed
that bribery of foreign officials was common American business practice).
1984]
FOREIGN CORRUPT PRACTICES
rected at corporate nondisclosure of funds used for illegal political
campaign contributions in the United States,'18 revealed that over
three hundred American companies had also made questionable
payments to foreign officials. 1 19 In addition, a cabinet-level task
force on corporate payments abroad made discoveries consistent
20
with those of the SEC.'
Congress considered bribery unethical and detrimental to American business.' 2 ' Bribery, in general, tainted the credibility of American corporations and, Congress observed, would thus result in a
loss of business and assets overseas. 12 2 Bribery also caused foreign
118. SEC REPORT, supra note 15, at 2-3. The SEC ultimately discovered that corporations
altered financial records to disguise and conceal the use of corporate funds for illegal purposes both domestically and abroad. Id. Corporations violated the federal securities laws
either by failing to record improper transactions, or by accurately recording the sums involved in transactions but not the underlying purpose for the payment. Id. at 5. See generally
Baruch, The Foreign CorruptPracticesAct, 57 HARV. Bus. REV. Jan.-Feb. 1979, at 32, 33 (reporting that SEC investigation revealed that prior to enactment of FCPA, companies either ignored disclosure provisions of securities laws or interpreted them to require only disclosure
of large sums of money).
119. S. REP. No. 114, 95th Cong., 1st Sess. 3, reprinted in 1977 U.S. CODE CONG. & AD.
NEws 4098, 4101; see also supra note 15 (discussing SEC findings of widespread foreign bribery
by American companies). Prior to the enactment of the FCPA in 1977, the U.S. Government
had no explicit statutory authority to prosecute corporations and their officers for bribing
foreign government officials. For examples of prosecutions under various statutes that occurred prior to the enactment of the FCPA, see PRACTICING LAW INSTITUTE, TRANSNATIONAL
CORPORATE CONDUCT, THE IMPACT OF UNITED STATES LAWS ON EUROPEAN AND UNITED STATES
OPERATIONS 381-435 (R.B. von Mehren & W.S. Surrey, cochairmen 1979). The SEC, however, could bring an action against a corporation that failed to disclose transactions as required under the federal securities laws. See Decker v. Massey-Ferguson, Ltd., 681 F.2d 111,
118-19 (2d Cir. 1982) (discussing SEC action against undercover use of corporate funds to
secure foreign business prior to enactment of FCPA); Baruch, supra note 118, at 33 (discussing SEC position on materiality of unlawful transactions under federal securities law); Note,
Disclosure of Payments to Foreign Government Officials Under the Securities Acts, 89 HARV. L. REV.
1848, 1850 (1976) (discussing grounds for disclosure of payments to foreign officials under
federal securities law). In addition, the SEC initiated a "Voluntary Disclosure Program" to
encourage corporations to report payments. SEC REPORT, supra note 15, at 6-13; see also SEC
v. Dresser Indus., Inc., 628 F.2d 1368, 1371-72 (D.C. Cir. 1980) (SEC concern over questionable corporate payments abroad resulted in SEC program to encourage disclosure). Indeed,
many companies came forward under the program and revealed payments to foreign governments and officials. SEC REPORT, supra note 15, at 32-42 (summarizing findings under "Voluntary Disclosure Program").
120. S. REP. No. 1031, 94th Cong., 2d Sess. 2 (1976).
121. H.R. REP. No. 640, 95th Cong., 1st Sess. 4-5 (1977). Bribery causes the public to lose
confidence in the free market system by directing business to those companies that are too
inefficient to compete in terms of price, quality, or service. Id. Bribery puts pressure on honest enterprises to lower their ethical standards or risk losing business. Id.; S. REP. No. 114,
95th Cong., 1st Sess. 3-4, reprinted in 1977 U.S. CODE CONG. & AD. NEwS 4098, 4101.
122. H.R. REP. No. 640, 95th Cong., 1st Sess. 5 (1977). Bribery was also unnecessary to
successful export sales because most U.S. firms did not pay bribes to compete with foreign
competitors, but rather to gain an edge over other U.S. manufacturers. Id. But cf. S. REP. No.
207, 98th Cong., 1st Sess. 6-10 (1983) (FCPA has caused lost U.S. sales and exports because
kickbacks and bribes are customary in some countries and these countries would, therefore,
rather do business with companies from nations that do not have prohibitions against bribery)
(statement of U.S. Ambassador Brock); Comment, The Foreign Corrupt Practices Act of 1977: A
Solution or a Problen, 11 CAL. W. INT'L L. REV. 111, 113 (1981) (U.S. businesses have lost sales
abroad because they cannot compete with firms from countries that allow bribes).
222
THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 34:203
policy problems for the United States by creating potentially embarrassing situations with friendly nations and by aggravating the suspi12 3
cions of nations with which our relations were already strained.
Ultimately, Congress considered international corporate bribery a
"severe" foreign policy problem that had to be addressed despite
the sensitivity that any congressional action might create for United
124
States foreign affairs in general.
To remedy the problems caused by international bribery, Congress enacted the FCPA. 125 The Act is comprised of two parts
designed to prevent such corrupt payments. 2 6 The first part sets
forth strict accounting and record-keeping requirements, 27 and the
second prohibits bribery of foreign officials. 128 Congressional intent to create a strong prophylactic is evidenced by the Act's application to a broad range of payments 29 and to a wide number of
3l
business entities,' 3 0 and by its severe penal provisions.'
123. H.R. REP. No. 640,95th Cong., 1st Sess. 5 (1977). Congress also focused on a worldwide disdain for corporate bribery, citing the Lockheed scandal in Japan and Italy and the
resignation of Prince Bernhardt of the Netherlands for actions made in connection with Lockheed. Id.; see also supra note 15 (discussing Senate Banking Committee investigations into
guaranteed loans granted to Lockheed). Finally, Congress recognized that illegal corporate
payments undermine our foreign policy in relation to developing countries because bribery
supports fears that American businesses operating abroad will have a corrupting influence on
the host country's political systems. S. REP. No. 1031, 94th Cong., 2d Sess. 3 (1976). These
suspicions prevented the United States from furthering its objective to promote accountable
governments and professional civil services in developing countries. Id. at 4.
124. H.R. REP. No. 640, 95th Cong., 1st Sess. 5 (1977). Justification for a corruption exception to the act of state doctrine stems partly from the Congress' opinion that bribery
causes U.S. foreign policy problems and taints the credibility of the free market system.
125. Pub. L. No. 95-213, tit. 1, 91 Stat. 1494 (1977) (codified at 15 U.S.C. §§ 78m, 78dd-l,
78dd-2, 78ff (1982)).
126. S. REP. No. 1031, 94th Cong., 2d Sess. 8 (1976). In developing the FCPA, the Senate Committee on Banking, Housing and Urban Affairs considered two approaches. Id. The
first was to require that bribes be publically disclosed and the second was to prohibit them by
law and impose penalties for violations. Idt Ultimately, the Committee decided on the direct
criminal prohibition of bribes as well as on the disclosure of all payments to foreign officials
so that corporations would not be tempted to conceal bribes among other payments. Id. at 79. Congress intended the accounting provisions to operate in tandem with the bribery provisions to deter corporate bribery. S. REP. No. 114, 95th Cong., Ist Sess. 7, reprintedin 1977
U.S. CODE CONG. & AD. NEWS 4098, 4104.
127. 15 U.S.C. § 78m (1982).
128. 15 U.S.C. §§ 78dd-1, 78dd-2 (1982).
129. See infra notes 140-48 and accompanying text (discussing various payments covered
under Act).
130. See infra notes 138-39 and accompanying text (discussing business entities covered
under Act).
131. See 15 U.S.C. § 78ff (1982). Issuers engaging in prohibited practices are subject to
fines up to $1,000,000, id. § 78ff(c)(1), and individuals acting on behalf of issuers are subject
to a $10,000 maximum fine and/or up to five years imprisonment. Id. § 78ff(c)(2)-(c)(3). The
FCPA imposes the same penalties on other domestic business entities that violate the Act. Id.
§ 78dd-2(b). Penalties include fines up to $10,000 and/or five years imprisonment for individuals and entities who make willful violations. Id. §§ 78dd-2(b)(2), 78ff(c)(2).
1984]
FOREIGN CORRUPT PRACTICES
A.
223
The Accounting Provisions
Congress enacted the accounting provisions of the FCPA as
amendments to section 13 of the Securities Exchange Act of 1934
(Exchange Act).' 3 2 Consequently, the provisions apply to all companies subject to regulation under the Exchange Act.' 33 The FCPA
imposes an affirmative duty to keep books, records, and accounts
that accurately reflect a company's transactions and dispositions of
assets,' 3 4 as well as a duty to devise and maintain a reliable system
of internal accounting.' 35 By increasing the credibility of corporate
records and the accuracy of accounting standards, Congress hoped
to foster renewed confidence in public corporations 3 6 and to prevent the concealment of illegal payments by false or misleading
37
disclosures. 1
B.
The Bribery Provisions
The bribery provisions of the FCPA are set forth in two substantively identical sections-one directed at issuers of registered securities, 1 38 and the other directed at all other United States business
concerns. 39 Generally, the FCPA prohibits corporate officers and
132. Pub. L. No. 95-213, § 102, 91 Stat. 1494, 1494-95 (codified as amended at 15 U.S.C.
§ 78m (1982)).
133. 15 U.S.C. § 78m(b)(2) (1982). The section applies to issuers, which are defined as
those companies that have a class of securities registered pursuant to § 12 of the Exchange
Act, id. § 781, or that file reports under § 15(d) of the Exchange Act, id. § 78o(d).
134. Id. § 78m(b)(2)(A). By inhibiting companies from concealing illegal disbursements
in corporate records, the FCPA's increased specificity prevents the kind of nondisclosure and
misleading disclosure that corporations made in the 1960's and early 1970's. The FCPA,
however, requires only that the company keep books and records in "reasonable detail" and
that these books "accurately and fairly" reflect the company's transactions. See S. REP. No.
114, 95th Cong., Ist Sess. 8, reprinted in 1977 U.S. CODE CONG. & AD. NEWS 4098, 4106
("[S]tandards of reasonableness must apply. In this regard, the term 'accurately' does not
mean exact precision as measured by some abstract principle.").
135. 15 U.S.C. § 78m(b)(2)(B) (1982). Congress also imposes a reasonableness standard,
see supra note 134, on the kind of auditing system the corporation chooses. A corporation is
allowed to choose a system that is appropriate for its size and for the nature of its operations.
S. REP. No. 114, 95th Cong., Ist Sess. 8, reprintedin 1977 U.S. CODE CONG. & AD. NEWs 4098,
4105-06.
136. S. REP. No. 1031, 94th Cong., 2d Sess. 3-5 (1976). The corporations involved in
bribery abroad were among the largest and most widely held. H.R. REP. No. 640, 95th Cong.,
1st Sess. 4 (1977). The industrial sectors typically involved included drugs and health care,
oil and gas production and services, food products, aerospace, airlines and air services, and
chemicals. Id.
137. S. REP. No. 114, 95th Cong., 1st Sess. 7, reprinted in 1977 U.S. CODE CONG. & AD.
NEWS 4098, 4105.
138. 15 U.S.C. § 78dd-I (1982). For the definition of issuer under the FCPA, see supra
note 133.
139. 15 U.S.C. § 78dd-2 (1982). Domestic concerns are any business entities that do not
fall within the definition of issuer. See supra note 133. They include, for example, individuals
who are citizens, nationals, or residents of the United States, corporations, partnerships,
joint-stock companies, business trusts, and unincorporated organizations. 15 U.S.C. § 78dd2(d)(l) (1982).
224
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
employees from using, with corrupt motives, any instrumentality of
interstate commerce in furtherance of a payment of something of
value to a foreign official or foreign political party.' 40 This prohibition not only includes actual transfers of money or gifts, but also
includes offers or promises to make such payments.' 4 ' The company must have made the offer of payment or payment for the purpose of inducing a foreign official to misuse his official capacity and
42
assist the company in obtaining or retaining business.'
The FCPA does, however, permit "facilitating" or "grease" payments. 14 3 Unlike payments designed to induce preferential treatment, the purpose of facilitating payments is to provide an incentive
14
to low-level foreign officials to carry out their duties efficiently.,
The payments do not result in these officials taking any new or
changed discretionary action. 14 5 The Act creates this exception because of its narrow definition of foreign official; the definition nota140. 15 U.S.C. §§ 78dd-l(a), 78dd-2(a) (1982). The statute specifically requires that the
company have a corrupt purpose in making the offer of payment or the payment. Id. According to Congress, the word "corrupt" connotes an evil motive or intent. S. REP. No. 114, 95th
Cong., 1st Sess. 10, reprintedin 1977 U.S. CODE CONG. & AD. NEws 4098, 4108. The vagueness of this language has given rise to problems in ascertaining whether certain business expenses or gifts constitute payments for corrupt purposes. S. REP. No. 207, 98th Cong., 1st
Sess. 7-10 (1983). Commentators have suggested that the value of the gift or expense and the
customs of the countries involved pertaining to the giving of gifts may reliably indicate the
purpose of a gift. See Sprow & Benedict, The Foreign CorruptPractices Act of 1977: Some Practical
Problems and Suggested Procedures, 1 CORP. L. REV. 357, 360 (1978) (vagueness of corruption
standard would be lessened by de minimis exception to foreign payments prohibition). The
Act's legislative history indicates that reasonable business expenses are not prohibited. Unlawful Corporate Payments Act of 1977: Hearings on H.R. 3815 and H.R. 1602 Before the Subcomm. on
Consumer Protectionand Financeof the House Comm. on Interstateand Foreign Commerce, 95th Cong.,
1st Sess. 51 (1977).
141. S. REP. No. 114, 95th Cong., Ist Sess. 10, reprintedin 1977 U.S. CODE CONG. & AD.
NEWS 4098, 4108. Congress indicated that the FCPA creates liability even if the foreign official does not accept the corporation's offer. Id. As long as the corporation made the offer of
payment with a corrupt motive, the FCPA does not require that the "act be fully consummated, or succeed in producing the desired outcome." Id.
142. S. REP. No. 114, 95th Cong., 1st Sess. 10, reprintedin 1977 U.S. CODE CONG. & AD.
NEws 4098, 4108. The payor must intend to induce the recipient into misusing his official
position to wrongfully direct business to the paying corporation, or to obtain legislation or a
government regulation that is favorable to the corporation. Id. Even if the foreign official
first proposed the payment, the corporation's act in making the payment is still considered
corrupt. Id.
Situations in which the official of the sovereign is engaged in extortion, however, are an
exception. Id. The corporation must establish that refusal to pay would have resulted in
severe damage to business assets. Id. This very narrow exception is recognized in these situations because the corporation did not use the payments to induce preferential treatment by
the sovereign, but rather used them to protect its business. Id.
143. H.R. REP. No. 640, 95th Cong., 1st Sess. 8 (1977). S. REP. No. 114, 95th Cong., 1st
Sess. 10, reprinted in 1977 U.S. CODE CONG. & AD. NEws 4098, 4108. Corporations make
facilitating or grease payments to ensure the efficient performance of administrative functions
such as expediting shipments through customs, securing required permits, and obtaining adequate police protection. Id.
144. H.R. REP. No. 640, 95th Cong., 1st Sess. 8 (1977).
145. l
1984]
FOREIGN CORRUPT PRACTICES
225
bly excludes officials whose duties are merely ministerial or
clerical. 14 6 Under the FCPA, therefore, it is essentially the recipient's position in the government hierarchy that determines the legality of a facilitating payment, rather than the payment's size or
purpose.' 4 7 The exception for grease payments thus may relieve
corporations of liability for payments to low-level officials made
48
merely to accelerate administrative processes abroad.
American companies, however, cannot circumvent the FCPA
through indirect payments that the company authorizes and funds,
but that a third party transfers to the foreign official. 1 4 9 To avoid
liability under the Act, for example, a corporation in the United
States might attempt to channel an illegal payment through its own
foreign subsidiary, salesman, or agent.' 50 The Act prohibits such
payments by companies to third parties if the payor knows or has
reason to know that the third party will use the payment to induce
preferential treatment, or to obtain or retain business for the
5
payor.1 '
C. Enforcement of the Act
The FCPA creates both civil and criminal liability.' 52 The Act
subjects regulated companies to possible civil enforcement actions
or criminal prosecution for violations of the Act's accounting provisions15 3 and imposes potential civil liability and criminal sanctions
146. 15 U.S.C. §§ 78dd-l(b), 78dd-2(d)(2) (1982). The section's definition of foreign official states, "tThe] term does not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or
clerical." Id.
147. H.R. REP. No. 640, 95th Cong., Ist Sess. 8 (1977). Although the Act allows substantial payments to minor officials for the performance of ministerial or clerical duties, one commentator has suggested that an inference of improper purpose is possible when the payments
are large. Baruch, supra note 118, at 46.
148. H.R. REP. No. 640, 95th Cong., 1st Sess. 8 (1977).
149. 15 U.S.C. §§ 78dd-l(a)(3), 78dd-2(a)(3) (1982).
150. H.R. REP. No. 640, 95th Cong., Ist Sess. 12 (1977). SEC files on questionable payments indicate that at least 64 American corporations had used foreign subsidiaries as conduits. Id. n.2. For an interesting discussion of conduct that may give rise to a parent
corporation's liability for payments that its subsidiaries make, see Baruch, supra note 118, at
48.
151. 15 U.S.C. §§ 78dd-l(a)(3), 78dd-2(a)(3) (1982). Although the Act does not define
"reason to know," the U.S. Court of Appeals for the Fifth Circuit has suggested that the
requisite knowledge for such a standard will exist if a person with ordinary intelligence would
infer from the facts and circumstances that a corrupt payment was likely to be made. Sanders
v. United States, 509 F.2d 162, 167 (5th Cir. 1975). Absent the definition of a reason to know,
one commentator suggests that prosecution of FCPA suits is difficult. See Baruch, supra note
118, at 48. In most cases it is questionable whether the payor actually knows where the
money's final destination will be, and often the case will turn on this question of "reason to
know." Id.
152. See 15 U.S.C. §§ 78m(b)(2), 78dd-l(a), 78dd-2(a)-(c), 78ff (1982).
153. Id. § 78m(b)(2). To aid its enforcement of the Act's accounting provisions, the SEC
226
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
on all violators of the Act's bribery provisions.1 54 Congress authorized both the SEC and the Department of Justice to enforce the
55
FCPA.1
Consistent with the general enforcement procedures of the federal securities laws, the SEC may bring actions against regulated
companies for civil violations of the Act,15 6 such as failure to keep
detailed books or failure to maintain an adequate internal accounting system.' 5 7 Initial SEC investigations may, in addition, lead to
the discovery of criminal violations, such as altering accounting
records to conceal bribes in the form of executive bonuses or salaries.15 8 The Commission's role with respect to criminal prosecupromulgated two rules pursuant to § 13(b)(2). See Falsification of Accounting Records, 17
C.F.R. § 240.13b2-1 (1984) (prohibits direct and indirect falsification of records and accounts); Issuer's representations in connection with the preparation of required reports and
documents, 17 C.F.R. § 240.13b2-2 (1984) (prohibits misrepresentations to accountants); see
also Bagby, Enforcement ofAccounting Standards in the Foreign CorruptPracticesAct, 21 AI. Bus. LJ.
212, 220-22 (1983) (discussing SEC enforcement of FCPA accounting provisions).
154. 15 U.S.C. §§ 78dd-l(a), 78dd-2(a)-(c), 78ff(c) (1982).
155. S. REP. No. 1031, 94th Cong., 2d Sess. 9-10 (1976). Congress initially considered
granting sole enforcement responsibility to the Department of Justice, but concluded that
such authorization would cause unnecessary duplication because the SEC already possessed
investigative authority under the federal securities laws. S. REP. No. 114, 95th Cong., Ist
Sess. 11, reprinted in 1977 U.S. CODE CONG. & AD. NEws 4098, 4109. Congress also recognized the SEC's particular expertise in investigating violations of the securities laws, its access
to corporate records, and its politically independent position. H.R. REP. No. 640, 95th Cong.,
Ist Sess. 9 (1977). The Commission's previous role in the discovery of widespread illegal
corporate payments also bolstered Congress' confidence in the agency's enforcement capabilities. Id
The congressional debate over whether there should be a private right ofaction was a long
and lively one in the Act's legislative history. S. REP. No. 1031, 94th Cong., 2d Sess. 12-13
(1976). Bills introduced prior to the present FPCA had included private causes of action, Id.
After Congress failed to adopt express private causes of action, Congress indicated that it
intended courts to imply a private cause of action under the Act. H.R. REP. No. 640, 95th
Cong., 1st Sess. 10 (1977). For an extensive discussion of the implication doctrine and its
applicability to the FCPA, see Siegel, The Implication Doctrineand the Foreign Corrupt PracticesAct,
79 COLUM. L. REV. 1085 (1979) (tracing legislative history of Act and concluding that an implied action for injunctive relief might apply to bribery provisions of Act, but not to accounting provisions).
156. S. REP. No. 114, 95th Cong., Ist Sess. 11, reprinted in 1977 U.S. CODE CONG. & AD.
NEws 4098,4109 (only remedy that SEC may bring on its own is civil injunction); S. REP. No.
1031, 94th Cong., 2d Sess. 10 (1976) (responsibility of SEC limited to investigations and civil
actions). The bulk of SEC activity in relation to the FCPA, both administrative proceedings
and injunctions, has been for civil violations of the accounting provisions. Business Accounting
and Foreign Trade SimplificationAct: Joint Hearingson S. 414 Before the Subcomm. on Int 'l Finance and
Monetary Polic, and the Subcomm. on Securities of the Senate Comm. on Banking, Housing and Urban
Affairs, 98th Cong., 1st Sess. 48, 51 (1983) (testimony ofJohn Shad, Chairman, Securities and
Exchange Comm'n) [hereinafter cited as Joint Hearings];see also SEC v. Barden Corp., 16 SEc.
REG. & L. REP. (BNA) No. 27, at 1161 (D.D.C.June 26, 1984) (permanent injunction against
violations of accounting provisions and reporting provisions of Exchange Act); SEC v.
Datapoint Corp., 16 SEC. REG. & L. REP. (BNA) No. 25, at 1083 (W.D. Tex. June 18, 1984)
(permanent injunction against violations of accounting provisions and reporting provisions of
Exchange Act).
157. 15 U.S.C. § 78m(b) (1982).
158. S. REP. No. 114, 95th Cong., 1st Sess. 11, reprintedin 1977 U.S. CODE CONG. & AD.
NEws 4098, 4109. The SEC may also prevent the continuation of corrupt practices through
1984]
FOREIGN CORRUPT PRACTICES
227
tion, however, terminates when it has compiled sufficient evidence
of a potential violation. 159 The Commission may refer the case to
the Department of Justice for further investigation and prosecution.' 60 The Department of Justice, which alone enforces the Act
against unregulated domestic concerns,' 6' is responsible for the
prosecution of all criminal violations. 16 2 In addition, the Department ofJustice has the power to bring injunctive actions against domestic concerns for continuing activities that violate the bribery
provisions of the FCPA.163 In dividing enforcement of the Act between these agencies, Congress intended that each would cooperate
64
with the other to ensure maximum enforcement of the law.'
injunctions. Id. SEC investigations of such violations of the antibribery provisions have resulted in only a few such civil enforcement actions. Joint Hearings, supra note 156, at 49, 52.
159. S. REP. No. 114,95th Cong., Ist Sess. 11-12, reprintedin 1977 U.S. CODE CONG. & AD.
NEWs 4098, 4108.
160. Id.; see 15 U.S.C. § 78u(d) (1982) (granting SEC authority to refer cases to Attorney
General for possible prosecution). The SEC has, however, referred relatively few cases to the
Department ofJustice. Telephone interview with Peter B. Clark, Trial Attorney, Fraud Section, Criminal Division, Department ofJustice (Feb. 16, 1984).
161. S. REP. No. 114, 95th Cong., 1st Sess. 12, reprinted in 1977 U.S. CODE CONG. & AD.
News 4098, 4110 (Department ofJustice has sole investigative and prosecutorial jurisdiction
over domestic concerns). For the FCPA's definition of domestic concern, see supra note 139.
162. H.R. REP. No. 640, 95th Cong., Ist Sess. 9 (1977); see United States v. McLean, 738
F.2d 655, 659-60 (5th Cir. 1984) (FCPA does not permit prosecution of employee when employer has not been and cannot be prosecuted for similar substantive offense under FCPA). In
addition to SEC investigations, the Department of Justice learns of violations of the FCPA
from a variety of sources, such as anonymous tips, newspaper stories, and foreign law enforcement officials. Telephone interview with Peter B. Clark, Trial Attorney, Fraud Section, Criminal Division, Department of Justice (Feb. 16, 1984). Anonymous allegations of bribery
generally have not led to successful investigations. Id. To date, the Department ofJustice has
prosecuted twelve cases under the FCPA. Id. All but two have been disposed of by plea. Id. A
12:1 ratio of plea dispositions to trials is consistent with the statistics of most divisions of the
Department ofJustice. Id.
The Department ofJustice, however, has investigated and closed a number of cases without
prosecution. SeeJoint Hearings, supra note 156, at 61-63 (Senator Proxmire requesting information from Department of Justice on closed investigations). See generally Wall St. J., Nov. 20,
1981, at 38, col. 3 (discussing Department of Justice investigation and prosecution under
FCPA).
The Department of Justice has also enabled companies to avoid prosecution under the
FCPA through use of the Department's "Review Procedure." See Criminal division review
under the Foreign Corrupt Practices Act of 1977, 28 C.F.R. § 50.18 (1984) (on submission of
review request, Department of Justice will review proposed conduct and state intentions of
enforcement of FCPA).
163. 15 U.S.C. § 78dd-2(c) (1982) (Attorney General has discretion to bring civil action to
enjoin act or practice that FCPA prohibits).
164. S. REP. No. 114, 95th Cong., 1st Sess. 12, reprinted in 1977 U.S. CODE CONG. & AD.
NEws 4098, 4109; H.R. REP. No. 640, 95th Cong., 1st Sess. 10 (1977); see also SEC v. Dresser
Indus., 628 F.2d 1368, 1384-87 (D.C. Cir.) (enforcement of FCPA and securities laws in general premised on close working relationship between SEC and Department of Justice), cert.
denied, 449 U.S. 993 (1980).
228
III.
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
CLAYCO PETROLEUM CORP. V. OCCIDENTAL PETROLEUM CORP.
A.
Facts and ProceduralHistory
The plaintiff in Clayco Petroleum Corp. v. OccidentalPetroleum Corp. 165
alleged that Occidental Petroleum had made secret payments in
1969 to officials of Umm Al Qaywayn to obtain a valuable offshore
oil concession. 166 Because the payments were made before Congress enacted the FCPA, the government was precluded from bringing an action against Occidental under the Act. 16 7 The SEC,
however, was able to bring an action against the corporation for violations of the disclosure provisons of the Exchange Act.' 6 8 The
court's decision in this action established that bribery had, in fact,
69
occurred.'
Clayco subsequently brought suit at common law and under the
Sherman and Robinson-Patman Acts, which prohibit restrictions of
competition and the practice of price discrimination.' 70 Clayco alleged that Occidental's offer of secret payments and the officials' acceptance of payment constituted a conspiracy to prevent
competition because it deprived the plaintiff of the concession.' 7'
The defendant Occidental argued that the case required the court to
invoke the act of state doctrine.' 72 Occidental asserted that
although the SEC investigation had established the existence of
165. 712 F.2d 404 (9th Cir. 1983), ceri. denied, 104 S. Ct. 703 (1984).
166. Id. at 405. Dr. Armand Hammer, Occidental's chief executive officer, made the initial payments to the Petroleum Minister of Umm Al Qaywayn, who was also the son of the
Shiekdom's ruler. Id. The payments, which totaled $417,000, were made in two disbursements, one in London, and one in Switzerland, as part of a $1.7 million deal with the State for
an oil and gas concession. Id.
167. Id. (payments were made in 1969, eight years prior to enactment of FCPA).
168. Id. Occidental consented to a permanent injunction and agreed to conduct an internal investigation of the payments. ld. Occidental also agreed to prepare a report describing
the payments for the SEC and its shareholders. Id. For a discussion of SEC actions against
corporations for foreign corrupt practices prior to the enactment of the FCPA, see supra note
119 and accompanying text.
169. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 405 (9th Cir.
1983), cerl. denied, 104 S. Ct. 703 (1984).
170. Id. The plaintiffs alleged violations of§ 1 of the Sherman Act, 15 U.S.C. § I (1982)
(contracts, combinations, and conspiracies in restraint of trade or commerce among U.S.
states or with foreign nation illegal), and of § 2(c) of the Robinson-Patman Act, 15 U.S.C.
§ 13(c) (1982) (payment of commissions or other compensation not for services rendered in
connection with sale or purchase of goods illegal). Id.
171. Id. at 406. The plaintiffs alleged that the son of the Sheikdom's ruler had promised
the oil concession to them in September 1969, but that it was awarded to defendant's subsidiary, Occidental of'Umm Al Qaywayn, Inc. in November of 1979. Id. at 405. Clayco asserted
that Occidental made the $417,000 in direct payments, as well as other entertainment expenses, solely to induce the awarding of the concession to Occidental. Id. at 406. Clayco first
became aware of the possibility that the concession was awarded in this manner after a newspaper article revealed the transaction between Occidental and Umm Al Qaywayn. Id. at 405.
172. Id. at 406. The Ninth Circuit recognized the government of Umm Al Qaywayn as a
foreign sovereign for purposes of the act of state doctrine. Id. at 405 n. 1.
1984]
FOREIGN CORRUPT PRACTICES
229
bribery, Clayco still had to prove that the bribe caused its injuries. 17 3 The court, therefore, would be required to examine the
"ethical validity" of the Umm Al Qaywayn officials' conduct. 174 Persuaded by the defendant's argument, the district court dismissed the
suit on the basis of the act of state doctrine, 75 and Clayco appealed
76
the case to the Ninth Circuit.'
B.
The Ninth Circuit Decision
On appeal, Clayco asserted that the court should not invoke the
act of state doctrine because the grant of the oil concession to Occidental did not constitute a sovereign act within the meaning of the
act of state doctrine. 17 7 Rather, the act was either commercial or
corrupt and the plaintiff was, therefore, entitled to have the court
adjudicate the claim under either a commercial or corruption exception to the doctrine. 7 8 The Ninth Circuit rejected Clayco's arguments, finding that the award of an oil concession is an act of state
because it implicates decisions regarding the development and allocation of a nation's oil resources. 179 Consequently, the court invoked the act of state doctrine and declined to hear the case.' 80
The court in Clayco summarily refused to apply a commercial exception to the doctrine, 8 1 and proceeded to address the plaintiff's
argument that the FCPA created a corruption exception to the act of
173. Id. at 406.
174. Id.
175. Id. The court stated that award of an offshore oil concession was an act of state, the
validity of which the court could not question. Id.
176. Id. at 405.
177. Id. at 406 (plaintiff argued that grant of concession did not involve sovereign policy
decision).
178. Id.
179. Id. at 407. The court found that Umm Al Qaywayn's act of awarding the concession
was a sovereign act that effectuated "public" interests. Id. at 406-07. The court analogized
the facts in Clayco to those in Occidental Petroleum Corp. v. Buttes Gas & Oil Co., 331 F.
Supp. 92 (C.D. Cal. 1971), aff'd mem., 461 F.2d 1261 (9th Cir.), cert. denied, 409 U.S. 950
(1972), which involved the same factual situation. Clayco, 712 F.2d at 407. In Buttes the plaintiffs alleged that the defendants induced the sovereign to issue a fraudulent territorial decree
enabling the defendants to exploit oil and gas in the area covered by the decree. Buttes, 331 F.
Supp. at 111-12. The court invoked the act of state doctrine and declined to hear the suit. Id.
at 112. The court in Clayco stated that although there was no sovereign decree in Clayco, the
suit, like Buttes, concerned the exploitation of natural resources, which is a sovereign decision.
Clayco Petroleum Corp. v. Occidental Petroleum Corp. 712 F.2d at 407. The court concluded, therefore, that Buttes was sufficiently analogous to call for the use of the act of state
doctrine in Clayco. Id.
180. Id. at 409.
181. Id. at 408. The Ninth Circuit noted that it had not yet adopted a commercial exception and would not recognize one in Clayco because the acts of Umm Al Qaywayn were sovereign acts, not commercial acts. Id.
Some courts, however, have recognized a commercial exception to the doctrine. See supra
notes 70-79 and accompanying text (discussing commercial exception to act of state
doctrine).
230
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
state doctrine because it reflected Congress' intent to have courts
hear claims involving foreign corrupt practices despite the concerns
underlying the doctrine. 8 2 The Ninth Circuit concluded that the
FCPA might provide the basis for a corruption exception, but declined to recognize the exception in Clayco because the action was
between two private parties. 8 3 The court distinguished Department ofJustice and SEC enforcement actions under the FCPA from
private lawsuits such as Clayco. 184 It observed that the invocation of
the act of state doctrine would not be appropriate in actions brought
by the executive branch because the act of state doctrine is itself
based on a theory of deference to the executive or legislative
branches in matters of foreign affairs.'8 5 The court emphasized that
Congress had recognized that FCPA enforcement actions could lead
to foreign policy problems and accordingly had placed explicit enforcement responsibility in the executive branch. 8 6 The court
stated, therefore, that implicit in the actions that the SEC or the Department of Justice bring under the Act is an executive determination that the court should hear the claim despite its potential effect
18 7
on foreign policy.
This same rationale, the court maintained, compelled it to reject a
corruption exception in Clayco. 188 Clayco was a suit between private
parties; the United States Government was not a party to the suit. 18 9
There had not been, therefore, an executive branch determination
that a court should hear the case.' 90 Because the case could have
implicated the acts of the sovereign Umm Al Qaywayn, the court
182. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 408-09 (9th
Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
183. Id. at 409.
184. Id.
185. Id.
186. Id. at 408-09 (citing Department of State Responses to October 5, 1981 Inquiry by U.S. Congressman Timothy E. Wirth, Chairman, Subcomm. on Telecommunications, Consumer Protection, and Finance ofthe House Comm. on Energy and Commerce 10-11, 13, 18, 20); see also Note, supra note 20, at
1261 (any prosecution under FCPA risks embarrasment of foreign governments involved).
Both the Department ofJustice and the SEC have the discretion to initiate enforcement proceedings under the FCPA. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d
404, 409 (9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984); see also United States v. Cox, 342
F.2d 167, 193 (5th Cir.) (Wisdom, J., concurring) (complexity and foreign relations impact of
case require that U.S. Attorney General have complete discretion to prosecute), cert. denied,
381 U.S. 935 (1965).
187. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9th Cir.
1983), cert. denied, 104 S. Ct. 703 (1984); cf Sage Int'l Ltd. v. Cadillac Gage Co., 534 F. Supp.
896, 910 n.26 (E.D. Mich. 1981) (act of state concerns subjugated to interest in stopping
foreign corrupt practices under FCPA).
188. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9th Cir.
1983), cert. denied, 104 S. Ct. 703 (1984).
189. Id.
190. Id. The Department of State distinguishes between FCPA enforcement actions and
private suits. Id. In private suits, there is no opportunity for the executive branch to balance
19841
FOREIGN CORRUPT PRACTICES
held that the act of state doctrine was necessary to protect against
the judiciary's infringement on United States foreign policy. 19 '
Although the court held that in enacting the FCPA Congress did
not intend to create a corruption exception to the act of state doctrine for private lawsuits, the decision left open the possibility that
an exception might be recognized in a suit between private parties if
there had been a prior Department of Justice or SEC enforcement
action under the Act.' 9 2 The plaintiff in Clayco alleged that requiring a prior government action under the FCPA in that case was inappropriate because the SEC had already examined and made a
determination about the corrupt transaction. 9 3 Although the court
rejected the plaintiff's arguments, it intimated that the act of state
doctrine would not preclude adjudication of a private suit that required examination of acts that had already been examined in a
prior FCPA enforcement proceeding.' 9 4 As the Department ofJustice continues to prosecute American businesses under the
FCPA, 19 5 however, the possibility of subsequent private suits in antitrust or in tort for the infringement of contractual rights increases.
Courts hearing suits that meet this procedural scenario, therefore,
should recognize a corruption exception to the act of state doctrine.
C.
1.
Critique and Implications of Clayco
Toward extending a corruption exception to private lawsuits
The act of state doctrine is the result of thejudiciary's recognition
of the doctrine of separation of powers and the consequent need for
judicial abstention in matters of foreign affairs.' 9 6 Courts, therefore, should not establish exceptions to the doctrine if excessive judicial interference into the functions of the executive or legislative
branch would result. The court in Clayco correctly recognized that
the danger of such interference was particularly acute in private
suits involving international corporate bribery because the litigants
foreign policy concerns against adjudication of the claim. Timberlane Lumber Co. v. Bank of
Am., 549 F.2d 597, 613 (1976).
191. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9th Cir.
1983), cert. denied, 104 S. Ct. 703 (1984). For a discussion of the role that the act of state
doctrine plays in maintaining the necessary separation of powers between the coordinate
branches of government, see supra notes 36-38 and accompanying text.
192. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 & n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
193. Id.
194. Id.
195. For a discussion of the current enforcement of the FCPA, see supra notes 158-62 and
accompanying text.
196. For a discussion of the origin and development of the act of state doctrine, see supra
notes 25-40 and accompanying text.
232
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
in these suits could raise issues concerning United States foreign
policy that were ordinarily left to the other branches of government. 197 The Ninth Circuit accordingly espoused strict adherence
to the act of state doctrine in private suits. 19 8
The Supreme Court, however, in Banco Nacional de Cuba v. Sabbatino, 199 stated that the concern for judicial interference into foreign
affairs is alleviated in situations in which the executive, the legislature, or the existing body of federal and international law indicates
that adjudication of a claim implicating the validity of sovereign conduct is appropriate. 20 0 In Clayco there had been such an indication;
the SEC had investigated Occidental under the Exchange Act for its
failure to properly disclose its transactions with the officials of Umm
Al Qaywayn.2 0 The court, however, discounted the executive
branch's signal because the Commission had not specifically addressed the payments that Occidental allegedly had made in connection with the grant of the oil concession.2 0 2 The court's holding was
justified because the SEC investigations had focused only on the disclosure of the payments rather than on the propriety of the transac20
tion between Occidental and the officials of Umm Al Qaywayn. 3
The court, however, should have gone further to distinguish the
20
purpose of the FCPA, which is to prevent international bribery, "
from that of the Exchange Act, which is to protect investors through
disclosure of corporate records. 20 5 The court's decision would, nevertheless, properly support the hearing of a private suit when the
executive branch has given a signal in the form of a prior FCPA
20 6
enforcement action for bribery.
Unlike a common-law exception, a corruption exception based on
197. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9(h Cir.
1983), cert. denied, 104 S. Ct. 703 (1984).
198. Id.
199. 376 U.S. 398 (1964). For a discussion of the decision in Sabbatino, see supra notes 3053 and accompanying text.
200. Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 428 (1964).
201. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 405 (9th Cir,
1983), cert. denied, 104 S. Ct. 703 (1984).
202. Id. at 409 n.6. The executive branch signal was in the form of a prior SEC investigation. Id.
203. Id.
204. See supra notes 116-31 and accompanying text (discussing background and purpose
of FCPA).
205. See JoiNT HEARINGS, supra note 156, at 52 (testimony ofJohn S.R. Shad, Chairman,
Securities and Exchange Comm'n) (primary purpose of disclosure under Exchange Act is to
protect investors, not to deter bribery).
206. See Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 & n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984). Prior enforcement actions by the SEC for
violations of the Act's accounting provisions that do not result in a finding of bribery would
presumably not support a subsequent suit. For a discussion on the accounting provisions of
the FCPA, see supra notes 132-37 and accompanying text.
1984]
FOREIGN CORRUPT PRACTICES
233
the FCPA, which specifically declares Congress' disdain for international bribery, 20 7 would be consistent with the objectives of the act
of state doctrine, which is to prevent judicial interference into matters of foreign policy. 20 8 Implicit in actions brought by the Depart-
ment of Justice or the SEC for bribery under the FCPA is an
executive determination favoring the prosecution of the particular
corporation, regardless of the potential ramifications for United
States foreign policy. 20 9 Because both the previous and subsequent
proceedings would stem from the same violation of the FCPA, the
executive determination to prosecute the prior action should also
indicate its approval of the adjudication of subsequent private
suits.
2 10
Although the decision in Clayco supports a corruption exception,
dicta in the decision suggests that the inquiry into sovereign conduct in the private suit should be limited to the same examination
that the court previously made in the FCPA enforcement proceeding.2 1 ' Because an FCPA enforcement action may focus almost entirely on the defendant corporation's conduct-to prove, for
example, afn offer to bribe rather than a completed transaction of
bribery 2 ' 2-there may be actions in which the court makes little or
no inquiry into sovereign conduct. 2 13 Even though inquiry in the
private suit in those instances would not be identical to the inquiry
in the initial enforcement proceeding, an FCPA prosecution premised primarily on the defendant corporation's conduct arguably
207. See supra notes 121-24 (discussing Congress' disdain for international corporate bribery); see also Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 408 (9th
Cir. 1983) (FCPA represents Congress' judgment that U.S. foreign relations are improved
because of strict antibribery statute), cert. denied, 104 S. Ct. 703 (1984).
208. One commentator has suggested that after the Department ofJustice has proven an
FCPA violation, the adjudication of a subsequent suit in antitrust under a corruption exception to the act of state doctrine would satisfy the policy concerns of both the FCPA and the act
of state doctrine. See Note, supra note 20, at 1261. Once the FCPA has been enforced by the
proper party, the subsequent suit will not offend the act of state doctrine because judicial
inquiry has already been made in light of foreign policy concerns. Id.
209. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 (9th Cir.
1983), cert. denied, 104 S. Ct. 703 (1984).
210. See Note, supra note 20, at 1261 (adjudication of subsequent private suits after executive branch prosecution would not interfere with separation of powers).
211. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 & n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
212. See supra note 141 and accompanying text (FCPA prohibits offers to bribe as well as
actual bribes).
213. Cf Sage Int'l, Ltd. v. Cadillac Gage Co., 534 F. Supp. 896, 910 n.26 (E.D. Mich.
1981) (defendant argued that because FCPA punishes offers to bribe, thereby obviating need
to determine whether bribes were taken, Congress circumvented embarrassing inquiry into
sovereign acts consistent with act of state doctrine). The court in Sage, however, suggested
that it is "inconceivable" that an FCPA enforcement action for bribery would proceed without
some inquiry into whether the alleged offer could have had the intended corrupt effect on the
sovereign, thereby calling into question the conduct of the foreign entity. Id
234
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
would not necessarily preclude a court's finding of a corruption exception in a subsequent private suit.2 14 The court's initial inquiry
into the alleged bribery would arise in an executive branch enforcement proceeding designed to deter such action. 2 15 In addition, the
21 6
exception would stem from Congress' intent to deter bribery.
The initial executive action, therefore, may provide a signal to the
court that inquiry into sovereign conduct in a private suit involving
corruption is appropriate despite the traditional mandates of the act
2 17
of state doctrine.
2. Requiring plaintifs to allege sovereign corruption
The court in Clayco did not address whether courts should decline
to establish a corruption exception in situations in which a plaintiff
has failed to allege in its complaint corruption by the sovereign as
well as corruption by the defendant. 21 8 In Clayco the plaintiff, in
fact, did allege that the officials of Umm Al Qaywayn conspired with
the defendant in a corrupt anticompetitive scheme.2 19 Because
most courts have required plaintiffs to allege sovereign corruption
before they address a corruption exception, 2 20 however, the court in
Clayco should have addressed the issue.
The court in Clayco should have clarified the underlying policy
reasons that led courts in prior decisions to require allegations of
sovereign corruption. One of the policy reasons that courts have
used for requiring such specificity is that allegations minimize judicial inquiry into sovereign activity by limiting the court's inquiry to
22
those cases exhibiting both corporate and sovereign corruption. '
The requirement prevents courts from making inquiry into sover214. Id.
215. See Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
216. Id. at 408-09.
217. Cf id.; Bernstein v. N.V. Nederlandsche-Amerikaansche Stoomvaart-Maatschappij,
210 F.2d 375 (2d Cir. 1954) (Department of State letter can direct court not to invoke act of
state doctrine). For a discussion of the Bernstein exception to the act of state doctrine, see
supra notes 80-86 and accompanying text.
218. See Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 406 (9th
Cir. 1983) (for purposes of addressing lower court's dismissal for failure to state claim, court
assumed that facts in plaintiffs complaint were true and constituted antitrust violations), cert.
denied, 104 S. Ct. 703 (1984).
The court arguably did not need to address the requirement that the plaintiff allege sovereign corruption because the corruption in Clayco was so explicit. See id. at 405 (discussing
specifics of corrupt activities).
219. Id. at 405.
220. See supra notes 92-109 and accompanying text (discussing courts' analysis of corruption exception in cases discussing issue).
221. See supra notes 94-109 and accompanying text (discussing cases in which court refused to hear claim because plaintiff did not allege sovereign corruption).
1984]
FOREIGN CORRUPT PRACTICES
235
eign conduct that is clearly ethical and valid, and thereby effectuates
the objectives of the act of state doctrine. 22 2 In addition, allegations
of sovereign corruption indicate to the courts that the sovereign
might not be acting in its sovereign capacity, but rather as a "private
party" conspirator against competition. 2 25 Because courts have indicated that the act of state doctrine should not protect a sovereign's corrupt activities, such allegations support the
appropriateness of a court's inquiry into the validity of the sovereign
224
acts, despite traditional act of state concerns.
IV.
SUGGESTIONS FOR A MANAGEABLE CORRUPTION EXCEPTION TO
THE ACT OF STATE DOCTRINE
The decision in Clayco has far-reaching ramifications for the creation of a corruption exception to the act of state doctrine. The
court's holding accorded proper deference to the act of state doctrine, but recognized that strict application of the doctrine is not
appropriate in some cases. 22 5 The decision premised the establishment of a corruption exception in a private lawsuit on two requirements. First, the Department of Justice or the SEC must have
investigated and brought an action against the defendant's violations of the FCPA bribery provisions. 22 6 Second, the court, consistent with prior case law, implicitly required the plaintiff to have
alleged sovereign corruption. 2 27 Assuming that courts will follow
these standards to formulate a corruption exception to the act of
state doctrine in private suits, there should be additional guidelines
to ensure that the scope of the exception is consistent with the purposes of the doctrine.
A.
Statutory Clarification of the FCPA: S. 414, the Business Accounting
and Foreign Trade Simplification Act
Because the decision in Clayco premised the establishment of a
222. See supra notes 39-40 and accompanying text (discussing concerns of act of state
doctrine).
223. See supra note 102 and accompanying text (discussing difference between traditional
sovereign acts and corrupt activity).
224. See supra note 92 and accompanying text (discussing corruption as exception to traditional act of state doctrine).
225. See supra notes 197-206 and accompanying text (discussing application of act of state
doctrine in Clayco).
226. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409, 409 n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
227. See supra notes 218-19 and accompanying text (discussing court's treatment in Clayco
of requirement that plaintiff allege sovereign corruption before discussion of possible corruption exception). For a discussion of cases in which courts refused to establish a corruption
exception because there had been no allegation of sovereign corruption, see supra notes 89109 and accompanying text.
236
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
civil suit corruption exception on a prior adjudication under the
FCPA, 228 ambiguities in the language of the Act should be clarified
to ensure an exacting application of the statute. Indeed, critics who
have called for the amendment of the FCPA have contended that the
statute is vague and difficult to interpret. 229 In addition, they have
argued that the government's enforcement of the Act has a potential
for inconsistency 23 0 because the Act does not clearly indicate
whether it proscribes particular kinds of payments, such as facilitating payments to upper level officials. 23 ' The arguably vague language of the FCPA allows for an expansive interpretation of the
statute's prohibitions. 23 2 An expansive interpretation of the FCPA
would not only result in a greater number of FCPA enforcement
actions, but would also broaden the scope ofjudicial inquiry in both
an FCPA enforcement proceeding and any subsequent private suits
in which the courts would apply a corruption exception to the act of
state doctrine. 23 3 A corruption exception to the doctrine, however,
should be only as broad as is necessary to allow courts to inquire
into the corrupt acts of sovereigns without incurring judicial inter2 34
ference in matters of foreign policy.
An amended FCPA that clearly defines its prohibitions would effectuate the purposes of the act of state doctrine because it would
228. Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 & n.6
(9th Cir. 1983), cert. denied, 104 S. Ct. 703 (1984).
229. S. REP. No. 207, 98th Cong., 1st Sess. 3 (1983) (FCPA has caused confusion among
exporters as to scope of legitimate overseas business; accounting provisions of FCPA unclear
and excessively burdensome); see infra notes 236-51 and accompanying text (discussing Congress' proposed amendment to FCPA).
These critics have also contended that the FCPA has resulted in loss of American business
in foreign markets. S. REP. No. 207, 98th Cong., 1st Sess. 3 (1983). They claim that the FCPA
has created two detrimental effects on American business abroad. First, the foreign response
to the Act has been negative and many countries have chosen to do business solely with nonAmericans simply to avoid the FCPA. Id. at 9-10. Second, many American businessmen, tinsure of how the Act applies to various business and travel expenses, which are a customary
way of doing business in some countries, have simply chosen to withdraw from these markets.
Id. at 8-10 (gift giving is customary business practice in Thailand); see alsoJoint Hearings, supra
note 156, at 24-28 (statement of William Brock, United States Trade Representative) (FCPA
hinders U.S. exports); id. at 75-82 (statement of Michael A. Samuels, Vice President, International United States Chamber of Commerce) (FCPA aggravates budget deficit).
230. Joint Hearings, supra note 156, at 54-55, 57-64 (panel discussion) (industry at peril of
prosecutorial discretion of government agencies attempting to enforce statute that is ambiguous and uncertain).
231. For a discussion of the kinds of payments that the FCPA prohibits, see supra notes
140-51 and accompanying text.
232. See S. REP. No. 207, 98th Cong., 1st Sess. 4-7 (1983) (discussing need for revision of
FCPA to remove vague and sweeping language).
233. Cf Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 409 n.6
(9th Cir. 1983) (suggesting that parameters of inquiry in private suit wbuld be set by initial
inquiry in enforcement proceeding), cert. denied, 104 S. Ct. 703 (1984).
234. See supra notes 26-67 and accompanying text (discussing basis for act of state doctrine, which is prevention ofjudicial interference in foreign affairs).
1984]
FOREIGN CORRUPT PRACTICES
237
enable courts to determine the scope of corrupt activity and accordingly limit their inquiries to that conduct. It would also preserve the
proper balance of authority among the branches of government in
foreign affairs. 3 5 By limiting inquiry to specific kinds of illegal conduct, an amended FCPA would thus prevent judicial interference
with the authority of the executive and legislative branches.
In an effort to clarify the language of the FCPA, Congress considered in 1981 and again in 1983 a series of amendments, known as
the Business Accounting and Trade Simplification Act (Trade Simplification Act). 23 6 Although Congress adjourned without passing
S. 414, which was the more recent bill, it is likely that a similar bill
will be reintroduced in the Ninety-ninth Congress.2 37 Congress' objective in attempting to amend the FCPA was to clarify the breadth
of its provisions to enable corporations to determine how they may
legally conduct business overseas. 238 The proponents of the bill intended the amendments to improve the government's ability to
evaluate compliance with the FCPA and to enforce consistently its
provisions. 2 39 In elucidating certain vague provisions of the FCPA,
S. 414 effectuated these goals. 2 40 Although the bill would have
amended both the accounting 24 1 and bribery24 2 provisions of the
FCPA, the changes suggested for the bribery provisions are of particular relevance to the propriety of recognizing a corruption exception to the act of state doctrine.
235. See supra notes 6-7 and accompanying text (discussing authority of each branch of
government in matters of foreign policy).
236. S. 708, 97th Cong., 1st Sess. (1981); S. 414, 98th Cong., Ist Sess. (1983). For further discussion of proposed amendments to the FCPA, see Bader & Shaw, Amendment of the
ForeignCorrupt PracticesAct, 15 N.Y.U.J. INT'L L. & POL. 627, 634-52 (1982); Comment, Amending the Foreign Corrupt Practices Act of 1977: A Step Toward Clarification and Consolidation, 73 J.
CRIM. L. & CRIMINOLOGY 1740, 1753-72 (1982).
237. See Foreign Corrupt Practices Report, FOREIGN CORRUPT PRACTiCES AcT REP. (BNA)
Supp. No. 29, at 4 (Oct. 31, 1984) (Congress adjourned without passing S. 414). Congress
first considered the Trade Simplification Act in 1981, which the Senate passed. See S. 708,
97th Cong., 1st Sess., 127 CONG. REC. S13,983-85 (daily ed. Nov. 23, 1981).
238. S. REP. No. 207, 98th Cong., 1st Sess. 4-7 (1983).
239. Id. at 17-19.
240. Id. at 20-21; see Joint Hearings, supra note 156, at 40-43 (testimony of Senator John
Chafee) (S. 414 clarifies FCPA and still deters bribery). But see id. at 4-5 (opening statement of
Senator William Proxmire) (S. 414 unnecessary and will allow companies to make more corrupt payments).
241. S. 414, 98th Cong., 1st Sess. § 101 (1983), would amend the accounting provisions
of the FCPA, 15 U.S.C. § 78m (1982). The new amendment establishes a scienter standard for
violations of the accounting provisions, and it further defines the responsibilities of an issuer
with respect to subsidiaries in which the parent has a 50% interest or less. S. REP. No. 207,
98th Cong., 1st Sess. 20 (1983). Criticism of the FCPA accounting provisions focused on the
excessive costs required to comply with the Act and the burdensome, if not unattainable,
accounting records that the Act likewise demands. Id. at 12. The FCPA imposes liability on
those who try, in good faith, to comply with its provisions. Id. at 10.
242. S. 414, 98th Cong., 1st Sess. § 104 (1983), would amend the bribery provisions of
the FCPA, 15 U.S.C. §§ 78dd-1, 78dd-2 (1982).
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
One of the most noticeable changes included in the Trade Simplification Act was the replacement of the FCPA's current bribery provisions with a provision that, if enacted, would have applied to all
United States business entities and to all United States citizens, nationals, and residents.2 4 3 The provision in S. 414, like that in the
FCPA, would have prohibited payments to foreign officials for the
purpose of inducing preferential treatment to obtain or retain business. 244 The provision, however, would have added a number of
exceptions designed to delineate the kinds of payments that would
not create liability under the Trade Simplification Act.2 4 5 These exceptions would have legalized many payments that the present Act
prohibits.2 4 6 One clause, for example, would have explicitly allowed
corporations to pay facilitating payments to any government official
to expedite administrative or clerical duties.2 47 Under the current
language of the FCPA, it is unclear whether corporations may make
these payments to certain upper level officials.2 48 Congress' attempt
to enumerate legally permissible payments was a prudent measure
because it would have provided the courts with clear standards for
evaluating the legality of a particular payment to foreign officials.
Although the proponents of the Trade Simplification Act intended this listing of legal payments to clarify the FCPA, their additional intention to give American companies greater latitude in
conducting business abroad, in fact, would have resulted in a
number of ambiguities. 24 9 For example, the Trade Simplification
Act would have exempted from its prohibitions all payments that
constitute a courtesy, a "token of regard or esteem," or that are in
243. S. 414, 98th Cong., 1st Sess. § 104 (1983).
244. Id. § 104(a).
245. Id. § 104(c). The exceptions were intended to clarify the language of the FCPA,
which has caused confusion in practice, concerning the legality of certain facilitating payments
and business expenses. S. REP. No. 207, 98th Cong., 1st Sess. 7-10 (1983).
246. S. 414, 98th Cong., 1st Sess. § 104 (1983). S. 414 would have expressly excluded
facilitating payments from its prohibitions. Id. § 104(c)(1) (1983). Because the FCPA implicitly excludes facilitating payments through its definition of foreign official, 15 U.S.C. § 78ddl(b) (1982), critics have contended that the Act has been difficult to enforce "due to the
multitude of relationships and responsibilities of employees of foreign countries." S. REP.
No. 207, 98th Cong., 1st Sess. 18 (1983). In addition, S. 414 would have changed the standard for indirect payments from a "reason to know" standard to one that makes it unlawful
for a corporation to "direct or authorize, expressly or by a course of conduct," a payment
through a third party in a corrupt manner. S. 414, 98th Cong., 1st Sess. § 104(b) (1983),
This standard arguably would have legalized a broader range of indirect payments. S. REP.
No. 207, 98th Cong., Ist Sess. 17-18 (1983).
247. S. 414, 98th Cong., 1st Sess. § 104(c)(1) (1983).
248. See supra note 246 (comparing treatment of facilitating payments under S. 414 and
FCPA).
249. See Joint Hearings, supra note 156, at 43 (discussing ambiguity created by new facilitating payments provision that allows payments to high-level government officials); see also Comment, supra note 236, at 1766-69 (discussing problems of interpretation in S. 708).
1984]
FOREIGN CORRUPT PRACTICES
239
return for hospitality. 250 It also would have legalized a broad spectrum of business expenditures. 251 The language of these provisions
arguably would have allowed corporations to conceal illegal payments as courtesies or traveling expenses; thus, courts would have
continued to evaluate the conduct of American business and foreign
sovereigns to determine the purpose of payments to foreign officials. The enactment of a bill with provisions as broad as those in
the Trade Simplification Act might not, therefore, limit judicial inquiry in cases involving foreign corrupt practices. Congress should
continue its efforts to amend the FCPA by modeling future legislation after the Trade Simplification Act. Congress should, however,
further clarify prohibited conduct and eliminate some of the bill's
weaknesses.
B.
Alleging Sovereign Corruption:Minimum Standards
Courts addressing the issue of a corruption exception to the act of
state doctrine have required the plaintiff to have alleged sovereign
corruption. 252 This requirement is theoretically sound, yet in practice may encourage plaintiffs to make groundless allegations of sovereign corruption simply to assert a claim under a corruption
exception. 2 53 Frivolous suits resulting from such allegations would
thwart the purpose of the act of state doctrine in two ways. First,
they would injure United States diplomatic efforts by angering and
insulting foreign officials about whom a plaintiff has made meritless
accusations. 25 4 Second, they would initiate unnecessary inquiry into
the validity of sovereign conduct. 2 55 Because of the sensitive nature
250. S. 414, 98th Cong., 1st Sess. § 104(c)(3) (1983).
251. Id. § 104(c)(4)-(c)(5) (1983). These expenses include travel and lodging expenses
associated with the selling, purchasing, or demonstration of goods and services, as well as
expenses associated with the performance of a contract with a foreign government or agency.
Id.
252. See supra notes 92-109 and accompanying text (discussing courts' analysis of corruption exception in cases discussing issue).
253. Although plaintiffs presently attempt to avoid the act of state doctrine by asserting
that the sovereign acted lawfully, defendants usually request the court to invoke the doctrine
anyway. See, e.g., Hunt v. Mobil Oil Corp., 550 F.2d 68, 75-76 (2d Cir. 1977) (excision of
foreign sovereign from action as co-conspirator does not prevent allegations as to its conduct
as necessary element in cause), cert. denied, 434 U.S. 984 (1978); Sage Int'l Ltd. v. Cadillac
Gage Co., 534 F. Supp. 896, 910 (E.D. Mich. 1981) (although plaintiff did not allege sovereign corruption, defendant argued act of state doctrine should be applied).
254. Cf Alfred Dunhill of London, Inc. v. Republic of Cuba, 425 U.S. 682, 697-98 (1976)
(underpinning of act of state doctrine to foreclose adjudications involving legality of acts of
sovereigns that might embarrass executive branch in conduct of U.S. foreign affairs).
255. Courts do not like to examine sovereign acts unnecessarily. See, e.g., Banco Nacional
de Cuba v. Sabbatino, 376 U.S. 398, 427-28 (1964) (refusing to examine validity of sovereign
acts absent treaty or unambiguous agreement regarding controlling legal principles);
Timberlane Lumber Co. v. Bank of Am., 549 F.2d 597, 607 (9th Cir. 1976) (court wishes to
avoid analyzing sovereign acts).
240
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
of foreign affairs and the need to accord proper deference to the act
of state doctrine, incidental allegations of sovereign corruption
should not be enough to permit courts automatically to invoke a
corruption exception in a particular suit. Consequently, minimum
standards for alleging sovereign corruption should be established.
These minimum standards should prevent plaintiffs from bringing
insubstantial claims.
After a court has invoked the act of state doctrine in a suit in
which a plaintiff is alleging injury from corrupt payments between
the defendant and a sovereign, the plaintiff's ability to proceed by
virtue of a corruption exception should depend on the party's ability
to demonstrate the merits of its allegations. 2 5 6 This demonstration
should indicate to the court that the plaintiff's allegations would not
serve merely as a catalyst for the invocation of a corruption exception, and that the court, therefore, should appropriately invoke the
exception.
Because the parties will be litigating these issues in federal
courts, 257 the Federal Rules of Civil Procedure will apply.25 81 The
requirement of notice pleading 2 59 notwithstanding, minimum standards of allegation should apply to prevent plaintiffs' attempts to
abuse the corruption exception. 260 Courts, however, have not fa256. Because a corruption exception derived from Clayco arguably requires a prior FCPA
enforcement proceeding, bona fide allegations of sovereign corruption also serve to complete
the plaintiff's cause of action in a subsequent private suit. Specific allegations of sovereign
corruption are necessary because FCPA enforcement proceedings may require very little inquiry into a sovereign's conduct. See supra notes 212-13 and accompanying text (FCPA pro.
ceeding can occur for corporations' offers to bribe as well as for actual bribes). The plaintiff's
allegations should show, therefore, that the sovereign indeed accepted a bribe to perform a
sovereign act that caused the plaintiff's alleged injury.
257. Antitrust suits form the majority of suits that plaintiffs bring implicating corrupt sovereign acts. See, e.g., Dominicus Americana Bohio v. Gulf& Western Indus., Inc., 473 F. Supp.
680, 684 (S.D.N.Y. 1979) (alleging monopolization of tourist facilities). Plaintiffs bring these
suits under federal antitrust statutes, and they are litigated, therefore, in federal court because
they raise a federal question. See 28 U.S.C. § 1331 (1982) (granting federal courts jurisdiction
to hear federal questions). Even if these suits did not involve a federal question, such as suits
in tort for infringement of contractual rights, diversity jurisdiction might still be present. See
id. § 1332 (governing jurisdiction of cases involving citizens of different states and of different
countries).
258. FED. R. Civ. P. 1.
259. Modern theories of pleading require only "a short and plain statement of the claim
showing that the pleader is entitled to relief." FED. R. Civ. P. 8(a)(2). The modern theory of
pleading advocates that courts liberally construe pleadings because a pleading's main function
is to provide notice of the nature of the claim. See Conley v. Gibson, 355 U.S. 41, 47-48
(1957); see also C. WRIGHT, LAw OF FEDERAL COURTS § 68, at 319 (3d ed. 1976) (sole function
of pleadings is to provide notice). The pleadings are to be construed so as to "do substantial
justice." FED. R. Civ. P. 8(f).
260. Courts and commentators have suggested that notice pleading does not adequately
serve justice in complex cases, such as antitrust suits, and have called for more specific pleadings. See Baim & Blank, Inc. v. Warren-Connelly Co., 19 F.R.D. 108, 109 (S.D.N.Y. 1956)
(notice pleading merely requires showing of type of litigation involved); Clark, Special Pleading
1984]
FOREIGN CORRUPT PRACTICES
vored extensive pleading of evidentiary matters. 2 61 In cases involving clandestine payments between a corporation and a foreign
sovereign, such proof, even if required, would be difficult to obtain. 26 2 An appropriate standard, therefore, would require the
plaintiff to make a prima facie showing 263 of corruption by the foreign sovereign. This prima facie showing would assist the court in
determining whether the facts of the case would warrant the application of a corruption exception. Similar to the procedure for requesting injunctive relief, which requires plaintiffs to establish a
likelihood of success on the merits, plaintiffs alleging sovereign corruption also could establish a prima facie case by using affidavits or
statements of counsel. 26 4 For example, to show that bribery occurred the plaintiff could assert that the Department of Justice had
already brought a successful FCPA enforcement proceeding against
the defendant for bribery. 26 5 In addition, the allegations also
should include information such as the position, if not the name, of
the foreign official involved, the acts that the sovereign took to the
plaintiff's detriment, and the nation's general attitude toward bribery, including the existence of any laws prohibiting bribery. These
allegations would ensure that a court's invocation of a corruption
in the "Big Case, ' 21 F.R.D. 45, 48-53 (1957) (special pleading would prevent delays in
litigation).
261. See, e.g., Bottomly v. Passamaquoddy Tribe, 599 F.2d 1061, 1063 (1st Cir. 1979) (notice pleading does not require more than general nature of suit); Federal Deposit Ins. Corp. v.
Huntington Towers, Ltd., 443 F. Supp. 316, 320 (E.D.N.Y. 1977) (notice pleading does not
require pleading of detailed evidence).
262. See, e.g., Habib v. Raytheon Co., 616 F.2d 1204, 1211 (D.C. Cir. 1980) (because matters shrouded in secrecy, plaintiff need not provide excessive detail to oppose summary judgment motion); Dominicus Americana Bohio v. Gulf& Western Indus., Inc., 473 F. Supp. 680,
693 (S.D.N.Y. 1979) (pleadings relying on information and beliefs sufficient where plaintiffs
provided facts from which an inference of fraud or corruption could be drawn).
263. See, e.g., White v. Abrams, 495 F.2d 724, 729 (9th Cir. 1974) (prima facie showing
consists of sufficient evidence to enable plaintiff to proceed past motion to dismiss); Husbands
v. Pennsylvania, 395 F. Supp. 1107, 1139 (E.D. Pa. 1975) (prima facie showing consists of
evidence sufficient enough to render reasonable conclusion in favor of plaintiff's allegation).
264. The Federal Rules of Civil Procedure allow a plaintiff to request temporary injunctive relief with affidavits or verified complaints. FED. R. Civ. P. 65(b). See, e.g., K-2 Ski Co. v.
Head Ski Co., 467 F.2d 1087, 1088-89 (9th Cir. 1972) (verified complaint or affidavits sufficient unless they consist of general or conclusory allegations); Bracco v. Lackner, 462 F. Supp.
436, 442 (N.D. Cal. 1978) (use of affidavits customary and appropriate); Parke, Davis & Co. v.
Amalgamated Health & Drug Plan, Inc., 205 F. Supp. 597, 601 (S.D.N.Y. 1962) (verified
pleading sufficient for temporary injunctive relief). Courts have also allowed sworn testimony
and depositions. See, e.g., Squillacote v. Local 248, Meat & Allied Food Workers, 534 F.2d
735, 748 (7th Cir. 1976) (injunction granted based on oral argument affidavit and transcript
of hearing before administrative law judge).
265. The allegation also would indicate to the court that, procedurally, the prior FCPA
suit would warrant the invocation of a corruption exception. See supra notes 209-10 and accompanying text (discussing possible implications of Department ofJustice and SEC actions
for bribery on subsequent private suits).
242
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 34:203
exception was properly limited in deference to the objectives of the
act of state doctrine.
CONCLUSION
SEC investigations in the early 1970's revealed that many American corporations commonly bribed foreign officials to procure preferential business treatment abroad. Competitors injured by the
sovereign acts that these transactions prompted have been unable to
obtain redress in United States courts because the act of state doctrine prohibits the judiciary from questioning the validity of sovereign conduct. Although the act of state doctrine is an important
limitation on courts' ability to interfere with the executive and legislative branches' authority over foreign affairs, it is a prudential rule
that courts may waive in light of overriding concerns. Courts have
suggested that one concern that may give rise to an exception to the
act of state doctrine is international corporate bribery. Most courts,
however, have declined to address the issue by requiring plaintiffs to
allege corruption by the sovereign in addition to corruption by the
defendant corporation.
Exceptions to the act of state doctrine, however, are most appropriate in situations in which the other branches of government have
either implicitly or explicitly agreed to judicial inquiry into the foreign policy matter. When Congress enacted the FCPA in 1977, it
expressed its disdain for international corporate bribery and authorized the executive branch to both investigate and prosecute corporations that violate the Act's prohibitions. Injured plaintiff
corporations have asserted that Congress' enactment of the FCPA
supports a corruption exception to the act of state doctrine. The
Ninth Circuit's decision in Clayco, despite the court's explicit holding, represents a major development in the trend toward the establishment of a corruption exception to the act of state doctrine.
Because the suit was between private parties, rather than between
the government and a defendant in an FCPA enforcement proceeding, the court declined to recognize a corruption exception. The
court's decision suggests, however, that in situations in which there
has been an FCPA enforcement proceeding against a particular defendant corporation, a corruption exception would allow injured
plaintiffs to bring subsequent civil suits against the same corporation. The use of a corruption exception in these subsequent suits
would not thwart the underlying purpose of the act of state doctrine, which is to prevent judicial interference in the area of foreign
affairs, because the executive branch would have directed the initial
19841
FOREIGN CORRUPT PRACTICES
243
suit under the FCPA. Although a corruption exception based on the
decision in Clayco would be consistent with the purposes of the act of
state doctrine, Congress should continue its efforts to clarify the
FCPA to ensure proper limits on the exception. In addition, courts
should require minimum allegations of sovereign corruption to
frustrate plaintiffs' attempts to bring frivolous suits.
VERONICA ANN DEBERARDINE