Eleventh Circuit Defines “Instrumentality” Under the FCPA

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In a case of first impression for the US Court of Appeals for the Eleventh Circuit, the court interpreted the term “instrumentality” of a foreign government in the Foreign Corrupt Practices Act (FCPA). The court used the decision to provide guidance to the defense bar and the government, explaining that it was “mindful of the needs. . . for ex ante direction about what an instrumentality is,” as the statute imposes civil or criminal liability for bribing a foreign official, defined only as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof” (emphasis added).

The decision arose in the criminal appeal of convictions of the owners of Terra Telecommunications Corp., a Florida company that purchased telephone minutes from foreign vendors and then resold them in the United States. One of Terra’s vendors was Telecommunications D’Haiti, S.A.M., which, during the disputed period, was 97 percent owned by the National Bank of Haiti. There was no dispute that defendants had bribed officers of Teleco over several years through a kickback scheme, but the defendants claimed they had no liability under the FCPA, arguing that Teleco was not a government instrumentality and, therefore, its officers were not foreign officials. 

The Eleventh Circuit affirmed the criminal convictions, applying a flexible definition of a government instrumentality as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” Whether an entity meets this definition in a given case is fact specific, so the court articulated factors to be considered by courts and juries. The factors to decide if the government controls an entity are: (i) the entity’s formal designation, (ii) whether the government controls a majority interest, (iii) the government’s ability to hire and fire the entity’s principals, (iv) whether profits go to the government, (v) whether the government funds the entity when it does not break even and (vi) the length of time the factors existed. Factors to consider whether an entity performs a government function are: (i) whether the entity has a monopoly on that function, (ii) whether the government subsidizes the cost of providing services, (iii) whether the entity provides services to the public at large and (iv) whether the public perceives the entity to perform a government function. Finding that Teleco met both the government control and function requirements, the Eleventh Circuit affirmed the FCPA charge, among others. 

United States v. Esquenazi, No. 11-15331, 2014 WL 1978613 (11th Cir. May 16, 2014).

 

Topics:  Appeals, DOJ, FCPA, Foreign Entities, Foreign Official, Instrumentality, SEC, Teleco, Terra Telecommunications

Published In: General Business Updates, Criminal Law Updates, International Trade Updates

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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