Eleventh Circuit Case Will Test DOJ’s Broad Reading of FCPA

by Ifrah PLLC
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Transparency in international business dealings is an admirable goal, but recently the executive branch has been trying to reach that goal by taking broad interpretations of the law beyond that intended by Congress. The Foreign Corrupt Practices Act (FCPA) prohibits the bribing of foreign officials. While that may seem like a straightforward concept, previous posts on this blog have shown that the precise definition of who constitutes a “foreign official” has long been the subject of much uncertainty, debate, and litigation.

The FCPA defines a “foreign official” as an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The Department of Justice takes a broad view of this definition, consistently using the FCPA to prosecute individuals who allegedly bribed employees of state-owned companies that act merely as commercial entities, such as utility companies, rather than those that act as a sovereign.

For the first time, a U.S. court of appeals is considering a case that tests this question. An appeal in the Terra Telecommunications case, previously discussed in a post on this blog, is currently pending before the U.S. Court of Appeals for the 11th Circuit. The defendants in that that case, Joel Esquenazi and Carlos Rodriguez, are former executives at Terra Telecommunications. They were convicted of bribing officials at the state-owned telecommunications company Haiti Teleco.

The defendants allegedly paid more than $890,000 over four years to shell companies to bribe the Haiti Telco employees. Haiti Teleco was the sole provider of land line telephone service in Haiti. Terra had a series of contracts with Teleco that allowed the company’s customers to place telephone calls to Haiti. The purpose of these bribes, according to the evidence presented at trial, was to obtain various business advantages from the Haitian officials for Terra, including the issuance of preferred telecommunications rates, reductions in the number of minutes for which payment was owed, and the continuance of Terra’s telecommunications connection with Haiti.

Prosecutors successfully persuaded the trial court that Haiti Teleco was an “instrumentality” of the Haitian government, thereby making its employees “foreign officials.” However, on appeal the defendants are asking the court to find the word “instrumentality” in the FCPA unconstitutionally vague and ambiguous. The Justice Department filed a brief on August 21, 2012, arguing for a broad reading of the term “foreign official.”

The defendants’ argument is not novel. For years, businesses and legal groups have been seeking guidance on the definitions of “foreign official” and “instrumentality” under the FCPA. In February, a coalition of businesses and organizations sent a letter to the DOJ seeking clarification of those terms. The letter highlighted the concerns that without proper guidance, businesses suffer uncertainty and risk when trying to comply with the FCPA because the authorities take a “highly fact-dependent and discretionary approach” in interpreting the terms.

Despite the DOJ’s long-standing position that the FCPA is not vague, it has announced that it will release new guidance this year on the act’s criminal and civil enforcement provisions. While the guidelines will provide clarification and guidance to businesses, they will almost surely perpetuate the DOJ’s absurd position that it can pursue employees of commercial entities merely because the companies are state-owned. This is clearly not what Congress intended in enacting the FCPA. Last year, FCPA expert Michael Koehler pointed out that the DOJ’s legal interpretation of “foreign official” is “the functional and substantive equivalent of the DOJ alleging that General Motors Co. or American International Group Inc. is an ‘instrumentality’ of the U.S. government (given its ownership interests in these companies) and that all GM and AIG employees are therefore U.S. ‘officials.’ ”

We hope that the appeals court will accept these arguments and will find that this case does not implicate the issues that the FCPA was designed to address. The courts need to keep the DOJ in check and prevent it from abusing its authority by prosecuting individuals under statutes that Congress did not intend to apply to them. Congress can amend the FCPA to clarify the law, but this issue should not be legislated through the courts in the context of a criminal prosecution.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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