In a closely watched case, the US Court of Appeals for the Eleventh Circuit has concluded that officers and employees of a foreign government-owned company may be “foreign officials” for purposes of the anti-bribery prohibitions of the Foreign Corrupt Practices Act (FCPA). The FCPA’s anti-bribery provisions generally prohibit an issuer or domestic concern from corruptly paying, or offering to pay, anything of value to a foreign official for purposes of obtaining or retaining business. See 15 U.S.C. §§ 78dd-1, 78dd-2. The FCPA deems officers and employees of an “instrumentality” of a foreign government to be “foreign officials,” but does not define instrumentality. The Department of Justice has long taken the position reached by the Eleventh Circuit, but the Eleventh Circuit is the first federal appellate court to define “instrumentality.”
In particular, in United States v. Esquenazi, No. 11-15331, 2014 WL 1978613, — F.3d — (11th Cir. May 16, 2014), the Eleventh Circuit defined instrumentality as “ an entity controlled by the government of a foreign country  that performs a function the controlling government treats as its own.” While the decision is hardly welcome news to businesses operating abroad, it does provide greater clarity and should serve as a further warning that businesses must train and, to the extent possible, monitor their employees and agents working on their behalf overseas.
In reaching its conclusion, the Court rejected defendant-appellants’ argument that the term applies only to entities that perform “traditional, core government functions.” The Court listed several non-exclusive factors relevant to determining foreign-government control:
- The foreign government’s formal designation of the entity;
- Whether the government has a majority interest in the entity;
- The government’s ability to hire and fire the entity’s principals;
- The extent to which the entity’s profits, if any, go directly into the government fisc;
- The extent to which the government funds the entity if it fails to break even; and
- The length of time the above indicia have existed.
And factors relevant to determining whether the entity performs a function the foreign government treats as its own include:
- Whether the entity has a monopoly over the function it exists to carry out;
- Whether the government subsidizes the costs associated with the entity providing services;
- Whether the entity provides services to the public at large in the foreign country; and
- Whether the public and the government of the foreign country generally perceive the entity to be performing a governmental function.
By way of background, in 2011, Florida-based Terra Telecommunications Corp. executives Joel Esquenazi and Carlos Rodriguez were convicted in the Southern District of Florida of various conspiracy and substantive counts of violating the FCPA and the Money Laundering Control Act (MLCA). Prosecutors alleged that the two defendants participated in a scheme in which Haiti Teleco directors reduced amounts owed by Terra to Haiti Teleco in exchange for kickbacks from the savings — often funneled through intermediary shell companies and under sham consulting agreements. Esquenazi was sentenced to 15 years imprisonment — the longest prison term ever imposed in an FCPA case — and Rodriguez was sentenced to seven years imprisonment. The two defendants appealed their convictions, in part challenging the District Court’s jury instructions as to whether Haiti Teleco employees were “foreign officials” merely because they worked for the state-owned entity.
Based on the above definition and factors, the Court concluded that evidence presented at trial was sufficient to support the jury’s finding that Haiti Teleco was an “instrumentality” of the Haitian government, and therefore that the bribed employees were “foreign officials” under the FCPA. The Court noted that Haiti’s national bank owned 97 percent of Haiti Teleco; certain Haiti Teleco officials were government-appointed; the government granted Haiti Teleco a monopoly over telecom services and gave it certain tax advantages; and a government expert testified that Haiti Teleco belonged to the state and was considered a public entity.
The Eleventh Circuit’s Esquenazi decision provides a significant contribution to FCPA case law, which has been scarce, but is expected to increase in years to come as the DOJ Criminal Division increasingly pursues individuals (who are more likely to litigate) under the FCPA. TheEsquenazi decision reinforces the need for companies and individuals doing business abroad, especially with foreign governments or state-owned entities, to maintain robust compliance programs and to perform routine risk assessments.