Guest blog post by Dan Shortt, Legal Editor in Publishing, Thomson Reuters
On May 16, the 11th Circuit Court of Appeals became the first appellate court to consider the meaning of “instrumentality” under the Foreign Corrupt Practices Act (FCPA). The issue came before the court in U.S. v. Esquenazi, a case in which two former executives of Terra Telecommunications Corp., Joel Esquenazi and Carlos Rodriguez, sought appeal of their convictions by a federal District Court for bribing foreign officials at Haiti Teleco, a telecommunications company owned by the Haitian government. The FCPA defines “foreign official” as an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.”
At trial, defense lawyers for Esquenazi and Rodriguez asked the District Court to dismiss the bribery charges due to the ambiguity of the term “instrumentality.” They further argued that state-owned enterprises are not an instrumentality, and therefore should not fall within the purview of the FCPA. The U.S. Department of Justice, however, disagreed, arguing that Haiti Teleco was an instrumentality because (1) it performed a governmental function, (2) the government owned 97 percent of Teleco’s shares, (3) Teleco’s officers were subject to Haitian law prohibiting the corruption of officials, and (4) Haiti’s president and high-level ministers controlled the appointment of Teleco’s board of directors. The District Court found the defendants guilty of violating the FCPA and sentenced Esquenazi to 15 years in prison and Rodriguez to seven years.
On appeal, the 11th Circuit affirmed the District Court’s decision and issued a detailed opinion in which it 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 court further clarified its definition of instrumentality by denoting a nonexhaustive list of factors for determining “control,” including —
- How a foreign government formally designates an entity;
- Whether the government has a majority interest in the entity;
- Whether the government has the ability to hire or fire the entity’s principals; and
- How the government manages the entity’s profits and losses.
Similarly, the court provided relevant factors for courts and juries to consider in determining whether an entity “performs a function the controlling government treats as its own,” including, but not limited to —
- 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 that foreign country generally perceive the entity to be performing a governmental function.
Companies should take note of this landmark decision because it establishes criteria for determining when employees of organizations with ties to foreign governments may be considered “foreign officials” under FCPA law. Organizations that operate in foreign countries should reexamine their anti-corruption programs and practices to account for these new criteria.