Under the Foreign Corrupt Practices Act (the “FCPA”), it is unlawful for companies to bribe or make corrupt payments to officials of foreign governments or of any “instrumentality” thereof. However, what entities are included as instrumentalities of a foreign government is not defined in the FCPA and there has been intense disagreement over the breadth of the term. The Eleventh Circuit recently issued a decision defining the concept of an “instrumentality” of a foreign government for purposes of the FCPA - thus expanding the number of individuals who may be considered “foreign officials” under the statute. The court’s landmark decision interprets the statute and the term “instrumentality” broadly to encompass a number of government-owned or controlled entities. Companies should be aware of this interpretation and take a close look at payments that, under this decision, may fall into the category of bribes to foreign officials.
At issue were the convictions of two ex-executives of Terra Telecommunications Corp. who were prosecuted under the FCPA for their roles in bribing employees of state-owned Haiti Teleco. The FCPA defines a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” On appeal of the convictions, the defendants argued that the court’s instructions to the jury on the definition of “instrumentality” were improper and that state-owned Haiti Teleco was not an instrumentality because there was no evidence that the company performed a government function.
The Court’s Definition
The Eleventh Circuit rejected the defendants’ arguments and held that the employees of Haiti Teleco were “foreign officials.” The court defined “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The court considered factors such as the plain meaning of the word, the statutory context in which “instrumentality” is used, and the FCPA’s legislative history. Perhaps most importantly, the court emphasized that it must interpret “instrumentality” in “such a way to ensure the United States is in compliance with the international obligations it voluntarily has undertaken.” Therefore, the court reasoned that it must “interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified” the Organization for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
The court provided guidance on the two elements of the definition. First, it provided a non-exhaustive list of factors to consider in determining whether a government “controls” an entity, including:
- The foreign government’s formal designation of that entity;
- Whether the government has a majority interest in that entity;
- The government’s ability to hire and fire the entity’s principals;
- The extent to which the entity’s profits go directly into the governmental fisc;
- The extent to which the government funds the entity if it fails to break even; and
- The length of time these indicia have existed.
Turning to the second element - whether an entity performs a function the government treats as its own - the court instructed that a finder of fact should consider the following factors:
- Whether the entity has a monopoly over the function it exists to carry out;
- Whether the government subsidizes the costs associated with the entity providing services;
- Whether the entity provides services to the public at large in the foreign country; and
- Whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.
Applying its definition of instrumentality, the court found that Haiti Teleco was an instrumentality, concluded that its employees constituted foreign officials under the FCPA, and affirmed the convictions.
Significance of the Decision
The Eleventh Circuit’s decision is consistent with the government’s more expansive and longstanding position of what entities are government “departments, agencies and instrumentalities thereof” and who is a foreign government official. The government’s view previously was laid out in detail in the FCPA Resource Guide issued jointly by the Securities and Exchange Commission and the Department of Justice in November 2012 (see our coverage here). Accordingly, the decision bolsters the government’s aggressive approach to FCPA enforcement and its expansive view of who may be a foreign government official.
To ensure compliance with the FCPA and other anti-bribery laws worldwide, companies should review their anti-corruption policies and consider whether the processes and controls in place are sufficiently broad to catch payments to officials such as those at Haiti Teleco addressed in the recent decision.