On May 16, 2014 in its U.S. v. Esquenazi decision, the 11th Circuit Court of Appeals upheld the Department of Justice’s broad definition of a key part of the Foreign Corrupt Practices Act (“FCPA”). At issue was ‘instrumentality’ within the FCPA’s definition of ‘foreign official’ (defined by the statute as ‘any officer or employee of a foreign government or any department, agency, or instrumentality thereof’ ). The 11th Circuit is the first appellate court to rule on this issue and its holding has immediate and broad impact on all U.S. businesses subject to the FCPA.
The Esquenazi Appeal
In 2011, a jury found appellant Esquenazi guilty on several substantive FCPA counts in connection with bribes paid to Telecommunications D’Haiti, and imposed on him the longest FCPA-related jail term to-date. On appeal to the 11th Circuit, appellant argued that the Department of Justice’s construction of ‘instrumentality’ was overly expansive and not consistent with Congress’s intent in drafting the FCPA. More specifically, appellant argued that (i) the facts that the National Bank of Haiti owned 97% of the stock in Telecommunications D’Haiti and the Haitian government appointed board members and directors to Telecommunications D’Haiti do not make Telecommunications D’Haiti an ‘instrumentality’ of a foreign government; and (ii) lower court erred by not instructing the jury to determine whether Telecommunications D’Haiti performed governmental functions similar to governmental departments and agencies . Therefore, according to appellant, any bribes paid to Telecommunications D’Haiti would be outside the scope of the FCPA.
Eleventh Circuit Ruling
The 11th Circuit panel upheld the Justice Department’s definition of ‘instrumentality’ by defining it as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The concepts of ‘control’ and ‘a function the government treats as its own’ are, according to the panel, fact-specific. The court provided a list of factors it considered relevant to deciding the issue. In order to determine whether a government ‘controls’ an entity, parties subject to the FCPA should examine (i) the foreign government’s formal designation of that entity; (ii) whether the government has a majority interest in the entity; (iii) the government’s ability to hire and fire the entity’s principals; and (iv) how the government manages the profits and losses of the entity.
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DOJ and SEC Resource Guide to the U.S. Foreign Corrupt Practices Act for more in-depth details on specific provisions.