On October 11, 2013, the 11th Circuit Court of Appeals heard oral argument in a closely-watched case, United States. v. Joel Esquenazi and Carlos Rodriguez.
The defendants, former executives of Miami-based Terra Telecommunications Corp., were found guilty in August 2011 of bribing officials of Haiti Teleco in order to receive contracts. The defendants were convicted of violating and conspiring to violate the FCPA, and wire fraud and money laundering statutes, and received jail terms of 15 years (Mr Esquenazi), and 7 years (Mr Rodriguez). The case is positioned to set precedent as the first federal appellate court ruling on a hotly-debated provision in the FCPA.
Although the appeals cover several issues, the most important issue for FCPA practitioners is whether the trial court properly instructed the jury regarding the term “instrumentality.” The FCPA prohibits bribing “foreign officials” in order to obtain or retain business. “Foreign official” is defined as an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The US Department of Justice has long contended that the term “instrumentality” covers not only entities performing core governmental functions, but also commercial businesses with some level of state ownership, and that a “foreign official” is any employee of such a business. Companies and individuals facing FCPA charges have argued that such an expansive definition is legally flawed and contrary to legislative intent.
The trial court instructed the jury that an “‘instrumentality’ of a foreign government is a means or agency through which a function of the foreign government is accomplished. Stateowned or state-controlled companies that provide services to the public may meet this definition.” The court then provided a non-exclusive list of five factors the jury might consider in making this determination.
The case has an unusual twist involving two declarations by Jean Max Bellerive, former Prime Minister of Haiti. A key issue in the case was whether Haiti Teleco was an “instrumentality” as defined in the FCPA and thus its employees qualified as “foreign officials.” The first declaration, dated 10 days before the jury verdict but delivered to defendants 5 days after the verdict, included statements that: “Haiti Teleco has never been and until now is not a state enterprise,” and “Haiti Teleco is not nor will be an organization subject to public law.” Later, the former Prime Minister signed another declaration prepared with the U.S. government’s assistance, stating that he believed that the earlier declaration was for internal purposes in support of Haiti Teleco’s modernization process, and he did not know that his declaration would be used in the litigation. The second declaration stated, “after the initial creation of Haiti Teleco and prior to its modernization, it was fully funded and controlled by the Bank of the Republic of Haiti, which is a public entity of the Haitian state,” and explained that Haiti’s President nominates Haiti Teleco’s Director General and board members, with concurrence of the Prime Minister and other ministers; Haiti Teleco does not pay taxes or import duties; Haiti Teleco benefits from a State monopoly; and prior to modernization, Haiti Teleco’s income was to be used for public purposes and its debts were paid by the Bank of the Republic of Haiti.
On appeal, the defendants argued, inter alia, that the definition of “instrumentality” given to the jury conflicted with existing precedent; no evidence was admitted establishing that Haiti Teleco performed a governmental function; Haiti Teleco was founded as a private company and is not an “instrumentality” of government simply because the national bank owned shares and the government appointed board members and directors; and the trial court should have held an evidentiary hearing regarding the two declarations. In response, the DOJ contended that the court’s definition of “instrumentality” was correct and supported by case precedent; evidence showed that the government, through the national bank, owned 97% of Haiti Teleco’s shares, the national bank subsidized Haiti Teleco, and Haiti’s President and ministers controlled Haiti Teleco through key appointments; and the defendants’ narrow interpretation of “instrumentality” was inconsistent with the FCPA’s terms and legislative intent.
Interested organizations and individuals continue to advocate for a clearer definition of “instrumentality.” For example, in a letter to the DOJ and SEC commenting on the FCPA Resource Guide released in November 2012, the U.S. Chamber of Commerce stated that if an entity does not perform a governmental or quasi-governmental function, it ordinarily should not be considered an “instrumentality” under the FCPA. The 11th Circuit’s upcoming opinion is sure to be carefully scrutinized and widely discussed for its potentially far-reaching effect on future FCPA prosecutions.