Eleventh Circuit Adopts Broad Definition of Government "Instrumentality" in Recent FCPA Case - Ruling Underscores the Need to Continually Assess and Update Anti-Bribery Policies and Practices

by Stinson Leonard Street

The Foreign Corrupt Practices Act (FCPA) makes it unlawful for a person or company to provide money or anything of value to any foreign official in order to obtain or retain business or to acquire an improper business advantage. The FCPA defines a "foreign official" as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof." However, the FCPA does not define "instrumentality," and the definition of this word became the central issue in United States v. Esquenazi.

Case Background

In Esquenazi, two co-owners of a Florida-based phone service company, Terra Telecommunications, were indicted on 21 counts of money laundering, wire fraud and substantive FCPA violations. The United States alleged that these two individuals paid bribes to certain officials of the Haiti-based telecommunications company, Telecommunications D'Haiti, S.A.M. (Teleco). At trial, the United States offered a substantial amount of evidence in an effort to show that Teleco was an "instrumentality" of the Haitian government under the FCPA, meaning that any bribes paid to Teleco officials would have straightforwardly constituted a violation the FCPA. The United States presented evidence that:

  • The Banque de la Republique d'Haiti (BRH), the central bank of Haiti, which is analogous to the US Federal Reserve, held a 97% ownership in Teleco.
  • The Haitian President appointed all of Teleco's board members.
  • Teleco was given special tax advantages and granted a monopoly on telecommunications services within the country.
  • Teleco was "considered" a public entity.

On this and some further evidence, the trial court concluded that Teleco was an "instrumentality" of the Haitian government, and therefore found the defendants guilty on all counts for their conduct in giving bribes. The verdict was affirmed on appeal before the Eleventh Circuit Court of Appeals.

On appeal, the Eleventh Circuit noted that it had never previously defined "instrumentality", nor had any of the other courts of appeal. Although the Eleventh Circuit stated that it "believe[d] Teleco would qualify as a Haitian instrumentality under almost any definition [the Court] could craft", the Court nonetheless proceeded to introduce a formal definition of "instrumentality" in order to provide corporations and the government with "ex ante direction about what an instrumentality is."

The Eleventh Circuit wrote, "an 'instrumentality' under section 78dd-2(h)(2)(A) of the FCPA is an entity [1] controlled by the government of a foreign country [2] that performs a function the controlling government treats as its own." In so declaring, the Eleventh Circuit chose to follow the DOJ and SEC's broad understanding of the word of "instrumentality," and found opposing arguments (including those suggesting that only an actual, official part of a government could be considered an "instrumentality") unpersuasive.

The Eleventh Circuit also noted that "what constitutes control and what constitutes a function the government treats as its own are fact-bound questions" which cannot be satisfactorily answered in the abstract. Even so, the Eleventh Circuit explicitly provided "a list of some factors that may be relevant to deciding the issue." The Court wrote, "To decide if the government 'controls' an entity, courts and juries should look to [1] the foreign government's formal designation of that entity; [2] whether the government has a majority interest in the entity; [3] the government's ability to hire and fire the entity's principals; [4] the extent to which the entity's profits, if any, go directly into the governmental fisc, and […] the extent to which the government funds the entity if it fails to break even; and [5] the length of time these indicia have existed".

To decide if an entity performs a function the government treats as its own, "courts and juries should examine [1] whether the entity has a monopoly over the function it exists to carry out; [2] whether the government subsidizes the costs associated with the entity providing services; [3] whether the entity provides services to the public at large in the foreign country; and [4] whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function."

The Effect of the Ruling and Recommend Compliance Measure

The Eleventh Circuit's ruling has several potentially important implications for businesses with international operations. First, the ruling clears up significant confusion and debate surrounding the concept of a government "instrumentality." Instrumentalities are now characterized as having two specific attributes: (1) being controlled by a foreign government and (2) performing a function that the foreign government treats as its own. Second, the Esquenazi ruling reaffirms the trend established in United States v. Aguilar to understand "foreign official" in a broad manner such that the FCPA is more widely-applicable. Third, the ruling underscores the need for corporate compliance officers to continually assess and update their anti-bribery policies and practices.

Recommended measures for compliance officers may include the following:

  • Determining whether foreign state-owned business partners qualify as government instrumentalities under the Eleventh Circuit's stated criteria
    Investigating any reports or allegations of bribery with special consideration as to whether the bribe was made to an individual who may be considered to be an "instrumentality" of the foreign government under the FCPA
  • Conducting FCPA and anti-corruption compliance due diligence in the context of mergers, acquisitions, and joint ventures, which takes into consideration the effects of the Esquenazi ruling, as well as other recent developments
  • Reviewing the company's policies guiding interactions with respect to all employees of any foreign state-owned businesses
  • Updating the company's training and education programs to ensure that the relevant persons fully understand the breadth of the Esquenazi decision and how the decision should impact their interactions with employees of any foreign state-owned business

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.

© Stinson Leonard Street | Attorney Advertising

Written by:

Stinson Leonard Street

Stinson Leonard Street on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.