For The Defense
Two recent developments have led to considerable confusion over enforcement of the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq. ("FCPA"), in advance of the government's expected issuance of official guidance on the FCPA. In a brief filed in the Eleventh Circuit in United States v. Esquenazi, et. al, No. 11-15331, the U.S. Department of Justice asserted for the first time in federal appellate court that a state-owned company qualifies as an "instrumentality of a foreign government" and that therefore bribes paid to officials of the company may violate the FCPA. Also, last month the Department of Justice issued an opinion that appears to exclude from the meaning of "foreign official" under the anti-bribery act any individual who does not "directly or indirectly represent that he is acting on behalf of . . . or in his capacity as a member" of a foreign government.
The Meaning of "Instrumentality of a Foreign Government"
Last year, two former executives of Terra Telecommunication Corp. were convicted in federal court in the Southern District of Florida of bribing employees of Haiti Teleco for the purpose of securing better calling rates and ensuring continued phone connection to Haiti. Until it was privatized in 2010, Haiti Teleco was a state-owned telecommunications company that served as the sole provider of landline telephone service in Haiti. Terra had entered into a series of contracts with Haiti Teleco that allowed its customers to place telephone calls to Haiti. At trial, the district judge instructed the jury that employees of a Haitian state-owned telecommunications company may be considered "foreign officials" under the FCPA because the company qualified as an "instrumentality of a foreign government."
After their convictions, the Terra executives appealed to the Eleventh Circuit, arguing that the jury instructions were erroneous and that the FCPA does not cover state-owned companies like Haiti Teleco because such companies do not perform a governmental function. In its responsive brief the U.S. Department of Justice disagreed. Arguing in favor of a broad reading of the FCPA, DOJ attorneys asserted that a "narrow interpretation of 'instrumentality' ignores the fact that governments perform many functions, including selling commercial services to the public, and they do so through entities other than 'departments' and 'agencies.'" Attorneys for the government also contended that the term "instrumentality" is not unconstitutionally vague, and that accordingly the defendants were on fair notice that their bribery scheme was illegal.
The Meaning of "Foreign Official"
In February 2012, an unidentified U.S. lobbying firm submitted a request to the Department of Justice for guidance related to its plan to represent the embassy and foreign ministry of an unnamed foreign country in its lobbying activities in the United States. In order to undertake its representation of the foreign country and to help it identify further business opportunities in the unnamed foreign country whose interests it sought to promote in the United States, the lobbying firm proposed to hire a consulting firm that counted among its three partners a member of the foreign country's royal family. The lobbying firm's request to the Department of Justice sought an opinion from the government regarding whether the royal family member qualified as a "foreign official" under the FCPA. In its request, the lobbying firm noted that the royal family member held no official title or position in the foreign government and was accorded no benefits or privileges as a result of his membership in the royal family.
Eight months after the request for guidance was submitted, the DOJ issued FCPA Opinion Procedure Release 12-01 ("Release 12-01"). Release 12-01 provided that the royal family member described in the lobbying firm's request for guidance does not qualify as a "foreign official" under the FCPA, "so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family." The government reasoned that a person's "mere membership in the royal family . . . by itself, does not automatically qualify that person as a 'foreign official.'" Rather, a proper assessment of whether a royal family member qualifies as a foreign official requires an examination of numerous factors, including, inter alia, the structure and distribution of power within a country's government, a royal family's current and historical legal status and powers, and the individual's position within the royal family. Based on such an analysis, the Department of Justice concluded that the royal family member at issue did not qualify as a foreign official.
Conclusion and Analysis
Should the Eleventh Circuit adopt the government's position with respect to the FCPA and state-owned enterprises, the scope of potential criminal liability under the FCPA may increase significantly. Business executives and corporate counsel for companies that engage in international business and enter into contracts with state-owned enterprises should be aware of this new development in FCPA enforcement and should make certain that appropriate policies and controls are in place to ensure compliance with the statute. Whereas the government's position in Esquenazi has the potential to widen the scope of the FCPA, Release 12-01 appears to significantly narrow the applicability of the FCPA to certain individuals. Indeed, Release 12-01 casts a great deal of confusion on the meaning of "foreign official." Prior to the issuance of this opinion, the Department of Justice routinely held that the status of individuals was dispositive in determining whether they could be considered foreign officials under the FCPA, without requiring an examination of their duties or actual level of influence within the foreign government's hierarchy. In fact, in the FCPA Lay-Person's Guide, the DOJ indicates that "the FCPA applies to payments to any public official, regardless of rank or position. The FCPA focuses on the purpose of the payment instead of the particular duties of the official receiving the payment . . . ." In Release 12-01, however, the government ignores the status test in favor of a more fact-specific inquiry into the precise duties and responsibilities of the individual at issue.
The timing of the government's brief in Esquenazi and its issuance of Release 12-01 is also curious, as the government promised last year that it was preparing to issue official FCPA guidance. That guidance is now expected to be published in the very near future. Given the government's recent positions in the Esquenazi case and in Release 12-01, however, there is growing concern that the guidance will fail to provide meaningful clarity over key aspects of the FCPA.