11th Circuit Defines “Instrumentality”
Earlier this month, the 11th Circuit handed down a landmark decision defining the term “instrumentality” under the FCPA. Two former executives of Terra Telecommunications Corporation challenged the government’s interpretation of the term in United States v. Esquenazi. Joel Esquenazi and Carlos Rodriguez, who were found guilty for their roles in bribing officials at Haiti’s state-owned telecom company, Haiti Teleco (“Teleco”), sought to limit “instrumentality” to mean “entities that perform traditional, core government functions.” The court rejected this argument and adopted a two-part test defining an “instrumentality” as any entity that (1) is “controlled by the government of a foreign country” and (2) “performs a function the controlling government treats as its own.” The court noted that whether an entity is controlled by, or performs, a function that the government treats as its own is a factual question. The court enumerated a non-exhaustive list of factors, which includes official designation as a government entity, the extent of the government’s interest in the company and the government’s control over hiring and firing company executives and managing profits and losses.
In Esquenazi, the appellate court affirmed the trial court’s decision that Teleco was an “instrumentality” controlled by the Haitian government. At the trial level, the court instructed the jury to consider a number of factors to determine whether Teleco was an instrumentality of Haiti. Based on the non-exhaustive list of enumerated factors, the appellate court found that the jury had sufficient evidence to find that Teleco was an instrumentality of Haiti given that: (1) Haiti granted Teleco a monopoly and offered lucrative tax advantages; (2) Haiti’s national bank owns 97 percent of Teleco; (3) the President of Haiti hired Teleco’s top executives and appointed all of Teleco’s board members; and (4) experts testified that “Teleco was considered . . . a public entity” and that “government officials, everyone consider[ed] Teleco as a public administration.”
While the Esquenazi decision provides much-anticipated guidance on the definition of “instrumentality” under the FCPA, the court left open potential challenges to FCPA cases in the future under the ambiguous second prong, “performing a government function.”
Former PetroTiger Executive Fights FCPA Charges at Trial
On Friday, May 9, former PetroTiger Ltd. CEO Joseph Sigelman was indicted in New Jersey federal court for FCPA violations and money laundering. According to the indictment, Mr. Sigelman allegedly bribed a Colombian official at Ecopetrol SA, Colombia’s national gas company, in order to obtain a $39 million oil contract. He also allegedly participated in a separate kickback scheme in connection with an acquisition PetroTiger was hoping to secure. Initially, Mr. Sigelman and his alleged co-conspirators used the Ecopetrol foreign official’s wife as a conduit for the bribes, compensating her for “consulting services” that were never performed for the company. PetroTiger’s former general counsel Gregory Weisman pled guilty in November 2013 to conspiracy to violate the FCPA and to commit wire fraud, and former co-CEO Knut Hammarskjold pled guilty to the same charges in February 2014.
Mr. Sigelman pled not guilty in federal court in Camden, New Jersey on May 14. A trial date is set for July 28.
Manufacturing Company Subpoenaed in China Probe
In May, industrial manufacturer PTC Inc. (formerly Parametric Technology Corporation) received an SEC subpoena regarding questionable “payments and expenses” that raised FCPA concerns. In February, PTC disclosed that the SEC was seeking additional information from the company regarding questionable “payments and expenses” made by PTC’s China subsidiary business partners. According to the company’s 10-Q, PTC “terminated certain employees and business partners in China in connection with this matter.” The filing stated that the company was cooperating with the DOJ and SEC’s requests for information, but did not mention any current settlement discussions.
Engineering Services Provider to Pay AfDB $5.7 Million to Settle Bribery Case
Engineering services provider, Snamprogetti Netherlands BV (Snamprogetti), received a $5.7 million financial penalty from the Integrity and Anti-Corruption Department (IACD) of the African Development Bank (AfDB). This sanction is part of a concluded negotiated resolution agreement that followed the company’s acceptance of the charge of corrupt practices. Snamprogetti and three other companies paid $180 million over nine years to government officials in Nigeria to secure a joint venture project to develop a liquefied natural gas plant in the country. The IACD levied a total of $22.7 million in penalties related to the joint venture, the highest penalty amount imposed by a multinational development bank. All four companies reached settlements with the DOJ and SEC on FCPA charges related to the joint venture. Snamprogetti and Technip SA also entered into deferred prosecution agreements (DPAs) with the DOJ. In June 2010, Technip agreed to pay $240 million in criminal penalties to the DOJ and $98 million in civil penalties to the SEC. In July 2010, Snamprogetti entered a DPA, paying $240 million in criminal penalties to the DOJ and $125 million in civil penalties to the SEC.
Shipping Giant Discloses Possible FCPA Violations in Kenya
In mid-June, FedEx Corporation confirmed that it has notified the DOJ and SEC of allegations that its Kenya business has paid bribes to government officials. The claims of this potential FCPA infringement revolve around potential payments made between 2010 and 2013 to customs officials in Kenya in exchange for clearing shipments without inspection as well as to government vehicle inspectors. FedEx operates in Kenya via a “nominated Service Contractor” called Pan Africa Express, according to the company’s website.
“Shortly after” becoming aware of these allegations in an anonymous December 2013 email, the shipping company says it informed authorities and has continued to cooperate with both agencies since initiating an investigation into the matter in 2013.
According to a FedEx spokesperson, the investigation is ongoing but the company has been unable to substantiate the reported claims thus far. Outside representation in East Africa has also been retained as part of the ongoing investigation.