Identifying UAE “Foreign Officials” for Anti-Corruption Compliance Purposes

Companies and other organizations doing business in the UAE or with enterprises owned in part by a UAE Government party at any level (e.g., the federal/union government or a government of one of the country’s constituent emirates (e.g., Dubai, Abu Dhabi, Ras al Khaimah), or entities owned in part by any of them, should be aware that under UAE law, the definition of “public official” (i.e., a government official) includes employees and directors of enterprises in which a UAE Government party holds less than a majority ownership stake and does not, formally or effectively, exercise control.

Definition of “Public Official” Under UAE Law Includes Directors, Managers, and Employees of Entities in Which a UAE Government Party Holds an Ownership Stake

For example, the UAE Penal Code (Federal Law 3 of 1987), as amended in late 2016, includes in the definition of “public official” the following: “Chairmen and members of boards of directors, managers and all other employees working in associations or public corporations” (Article 5). In practice, persons employed by commercial enterprises in which a UAE Government party held less than a majority ownership interest have been treated as “public officials.” For example, in a 2009 article, “Who Qualifies as a Government Official in the UAE?,Hdeel Abdelhady discussed, among other cases, the prosecutions for financial fraud of former executives of a Dubai-based bank who were handed enhanced sentences because they were “public officials” and therefore qualified for stiffer sentencing because they had abused their public positions and breached the public trust (article on file with Hdeel Abdelhady). The Dubai bank involved in that case was not majority-owned by the Dubai Government– the government’s ownership stake was approximately 30% at the time—and the bank held itself out and functioned in the market as a private financial institution. (To be clear, the government’s minority ownership stake was well-known and readily discoverable from, among other sources, the bank’s website and reports to investors).

“Foreign Officials” and State “Instrumentalities” under the FCPA

For U.S.-based and other parties subject to the Foreign Corrupt Practices Act (FCPA), understanding who might qualify as a UAE Government official is important. The FCPA defines a foreign official as, inter alia:

any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.

As is evident from the FCPA’s text, as well as from FCPA enforcement actions, the definition of “foreign official” is quite broad and encompassing. Where an apparent state-owned or state-controlled enterprise (SOE) is involved, the classification of a director or employee of such an SOE as a “foreign official” is contingent upon the entity being deemed an SOE that is an “instrumentality” of the state. As the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have explained, the term “instrumentality,” as used in the FCPA’s definition of “foreign official,” “is broad and can include state-owned or state-controlled entities.”[1] The relatively scant case law interpreting the FCPA and its relevant provisions is generally in accord with the DOJ and SEC’s relevant analytical framework. [2]

OECD Guidelines Defer to National Law Definitions of “State-Owned Enterprises,” U.S. Practice is Consistent with OECD Approach

The OECD Guidelines on Corporate Governance of State-Owned Enterprises (“OECD SOE Guidelines”) defer to the national law of an SOE jurisdiction to determine if an entity qualifies as an SOE. The OECD SOE Guidelines state that, “[f]or the purposes of the Guidelines, any corporate entity recognized by national law as an enterprise, and in which the state exercises ownership, should be considered an SOE.”[3] The DOJ and SEC approach to identifying SOEs is consistent with the OECD’s approach, as among the “non-exclusive” “factors to be considered” in determining SOE status is “the foreign state’s characterization of the entity and its employees.[4]

Identify FCPA and Local Law Obligations and Risks When Doing Business with Enterprises Owned by a UAE Government Party

While a foreign state’s legal characterization–for specific or general legal purposes–of employees of entities in which the state owns any ownership stake may arguably stretch the definitions of a “foreign official” and state “instrumentality” in the FCPA or other anti-corruption law context, companies and other entities doing business in the UAE or with entities owned directly or indirectly by a UAE Government party should understand how local law characterizes such entities and their employees and take steps to ensure that appropriate fact-intensive and risk-based analyses are undertaken to avoid inadvertent or other breaches of the FCPA or other applicable law. Foreign businesses should also be aware that UAE law applies to and punishes both “public officials” who, inter alia, solicit and accept bribes or other “things of value” offered or given with corrupt intent and parties—foreign or local—who offer or give such bribes or other “things of value” with corrupt intent.

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For Further Information  

To discuss this publication or how MassPoint can work collaboratively with your organization to manage anti-corruption and related compliance obligations and risks, contact Hdeel Abdelhady at habdelhady@masspointpllc.com or +1 202 630 2512.


NOTES

[1] U.S. Department of Justice and Securities and Exchange Commission, A Resource Guide to the Foreign Corrupt Practices Act, November 2012, at 20 (“FCPA Resource Guide”).

[2] Id. at n. 44 and notes 119-126 (discussing cases in which state-owned enterprises were deemed “instrumentalities” and/or in which employees of state-owned enterprises were deemed “foreign officials.”

[3] OECD SOE Guidelines, at 14.

[4] FCPA Resource Guide at 20 (emphasis added).[/vc_column_text][/vc_column][/vc_row]