On May 16, 2014, the U.S. Court of Appeals for the Eleventh
Circuit upheld the convictions of Joel Esquenazi and Carlos
Rodriguez, former executives for Terra Communications, convicted of
paying bribes to officials of Haiti Teleco, Haiti's state-owned
telecommunications company. Esquenazi and Rodriguez had argued on
appeal that the trial court erred in its instruction to the jury on
the definition of "instrumentality" of a foreign
government.
The FCPA prohibits paying, offering, or promising something of
value to officials of foreign governments in order to obtain or
retain business. The FCPA defines a "foreign official" as
"any officer or employee of a foreign government or any
department, agency, or instrumentality
thereof." 15 U.S.C. § 78dd-2(h)(2)(A) (emphasis added).
The precise definition of what constitutes an
"instrumentality" of a foreign government has been a
matter of much debate, with no guidance at the appellate
level.
Esquenazi and Rodriguez contended that instrumentalities of a
foreign government must be direct parts of a government or perform
a core government function. The government argued that the term
"instrumentality" is broad, and can include
state-controlled entities, even if they are engaged in commercial
activities like telecommunications. This argument is consistent
with DOJ's and the SEC's "Resource Guide to the U.S. Foreign Corrupt
Practices Act," published in 2012. See
Venable's
analysis of the Resource Guide.
The Eleventh Circuit rejected the defendants' arguments, and
adopted a definition largely in line with the government's.
While stating that the question of whether Haiti Teleco was an
instrumentality of the Haitian government was not a close decision
"under almost any definition we could craft," the court
nevertheless opined:
An "instrumentality" under...the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.
By way of providing additional guidance, the court provided a
non-exclusive list of factors, including "the foreign
government's formal designation of that entity,"
"whether the government has a majority interest in the
entity," "the government's ability to hire and fire
the entity's principals," "whether the entity has a
monopoly over the function it exists to carry out," and
"whether the government subsidizes the costs associated with
the entity providing services."
As such, the Eleventh Circuit left open the possibility that an
entity could be controlled or owned by a foreign government but not
necessarily be an instrumentality within the meaning of the FCPA,
where the activity engaged in by the entity is purely commercial
and it operates in the market essentially as a private enterprise.
However, the court clearly rejected the defendants' contention
that a government controlled-entity that provides a commercial
service automatically falls outside the statute.
While the Eleventh Circuit's definition might provide defense
counsel with some room to maneuver given the right facts, the court
did not dramatically change the current enforcement landscape.
Nevertheless, given this more certain definition of an
instrumentality of a foreign government, companies operating
internationally would be well advised to review their roster of
customers and other business partners to determine if any fit this
definition. If so, companies should ensure that they have taken
appropriate anti-corruption compliance steps with respect to their
businesses and especially "instrumentality" customers or
partners.
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