In a previous blog entry, we discussed a landmark case currently pending in Korea where that country’s Supreme Court is considering the circumstances under which an employee of a state-owned or controlled company can be considered a “foreign official” for purposes of alleged violations of Korea’s version of the Foreign Corrupt Practices Act (“FCPA”). Interestingly, that same question is also currently before the U.S. Court of Appeals for the Eleventh Circuit, in U.S. v. Esquenazi. In a little over a month, the Eleventh Circuit will hear oral arguments in what will become the leading appellate case to define the contours of “foreign official” under the FCPA.

Esquenazi stemmed from a federal investigation into a private telecommunications company in Miami, called Terra Communications, and its relationship with the national telecommunications company of Haiti, called Teleco (“Teleco”). Prosecutors alleged that Terra executives used intermediaries to make almost $1 million in payments to Teleco executives in exchange for securing lower rates and other improper business advantages. The payments were allegedly made to Teleco employees, including Robert Antoine and Jean Rene Duperval and two owners of Terra – Joel Esquenazi and Carlos Rodriguez – were alleged to have orchestrated the scheme.

Before trial, defense lawyers for Esquenazi and Rodriguez moved to dismiss the indictment, arguing that Antoine and Duperval were not “foreign officials” under the FCPA because Teleco was not an “instrumentality” of the Haitian government. The motion was denied, and the jury was instructed that in deciding whether Teleco was an instrumentality, it could consider the following non-exclusive list of factors:

  • Whether the company provides services to the citizens of Haiti;
  • Whether its key officers and directors are government officials or are appointed by government officials;
  • The extent of Haiti’s ownership of Teleco;
  • Teleco’s obligations and privileges under Haitian law; and
  • Whether Teleco is widely perceived and understood to be performing official or governmental functions.

The trial evidence established that the National Bank of Haiti owned 97% of Teleco’s stock and that the Haitian government had the right to appoint two of Teleco’s board members.

Esquenazi and Rodriguez were convicted at trial and sentenced to 15 and 7 years in prison, respectively. Antoine and Duperval were convicted separately and received sentences of 4 and 9 years, respectively.

Esquenazi and Rodriguez have appealed their convictions, principally challenging the jury instructions relating to the “foreign official” issue. They maintain that an “instrumentality” under the FCPA should include only those state-owned companies that perform political, public, or governmental functions, not simply those companies that are state-owned or controlled. The Department of Justice has countered that the text of the FCPA is clear and applies to any instrumentality of a foreign government, not just those that perform political, public, or traditional governmental functions. Among other arguments, DOJ asserts in its brief that the concept of what is a traditional governmental function varies from country to country and that appellants ignore that such distinctions could exist.

This will be the first time a federal appeals court has ruled on this important issue of what it means to be a “foreign official,” and a decision either way could have a significant impact on future FCPA cases. A ruling for the Justice Department could conceivably lead to DOJ and the SEC seeking to push the envelope even more and broadening the application of what it means to be a “foreign official.” A ruling for the appellants, on the other hand, could result in the loss of a major tool in the government’s FCPA arsenal and could result in calls for a legislative fix.

We will continue to monitor and report any significant developments in this case.