The US Court of Appeals for the Eleventh Circuit confirmed an extended scope of the FCPA prohibition on corrupt payments made to foreign officials in its ruling of May 2014. FCPA payments are not only limited to those officials serving in a traditional government ministry or agency, but also apply to employees of an instrumentality of a foreign government. This is the first time a court of appeals has ruled on what defines instrumentality, and it supports the position already taken by the SEC and the DOJ. Companies subject to the FCPA therefore need to keep in mind that a wide range of entities are subject to US anti-bribery legislation.
In 2011, the former president of the US-based company Terra Telecommunications Corp. and his colleagues were convicted for their involvement in a scheme to bribe employees at Telecommunications D’Haiti, S.A.M. (Teleco), a telecom company largely owned by the Haitian government. The former president was sentenced to 15 years in prison. On appeal, he argued that Teleco was not an instrumentality of a foreign government, alleging that Teleco is not and has never been a state-run enterprise, and that no laws designated Teleco as a public institution. The Court of Appeals did not agree and applied a more extensive definition of instrumentality, supporting the position previously taken by the DOJ and the SEC.
The definition of instrumentality
The case revolved around the extent to which entities qualify as instrumentalities under the FCPA. The Court rejected the stance that the entity should be part of the foreign government since that explanation would be too narrow in light of the “wide net over foreign bribery” intended by the FCPA. Instrumentalities encompass a “distinct class of entities” not limited to governments and their departments or agencies. 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 two elements in this definition are fact-bound, and can be determined by answering the following questions:
- Is the entity controlled by the government of a foreign country?
- Does the entity perform a function the controlling government treats as its own?
Beware of instrumentalities of foreign governments
Companies subject to the FCPA need to keep in mind that a wide range of entities may be considered instrumentalities of foreign governments. Moreover, the line between instrumentalities of foreign governments and private companies may not always be clear; government-controlled entities can provide services that are normally performed by private companies. In light of the fact-bound qualification of instrumentality, companies should determine whether (prospective) business partners may, under certain circumstances, be considered instrumentalities of foreign governments under the FCPA. It is prudent to review applicable corporate anti-corruption compliance policies on this point.