In recent years, the DOJ and SEC have significantly increased their Foreign Corrupt Practices Act (FCPA) enforcement efforts, and in the process, have successfully advocated the theory that state-owned or state-controlled entities should qualify as instrumentalities of a foreign government under the FCPA. The FCPA defines a foreign official as "any officer or employee of a foreign government or any department, agency or instrumentality thereof." In August 2014, the government's broad definition of who constitutes a "foreign official" came into question for the first time when two individuals (Joel Esquenazi and Carlos Rodriguez) filed a petition for writ of certiorari with the Supreme Court to challenge their convictions under the FCPA and argued for the high court to limit the FCPA's definition of the term. However, on October 6, 2014, the Supreme Court declined to consider the potential landmark case effectively upholding the government's broad view of the term "foreign official."
A federal jury had convicted Messrs. Esquenazi and Rodriguez, former executives of Terra Telecommunications Corp., for their roles in a scheme to bribe officials at Haiti's state-owned telecommunications company, known as Haiti Teleco. Esquenazi was sentenced to fifteen years in prison (the longest such sentence in FCPA history), and Rodriguez received seven years. On appeal, the defendants argued that Haiti Teleco did not fall under the FCPA definition of an "instrumentality" because it is a foreign state-owned business as opposed to a government agency. Thus, the Haiti Teleco officials who received the bribes were not "foreign officials" under the FCPA.
The Eleventh Circuit disagreed with their arguments and affirmed the convictions. In so doing, the appeals court defined an "instrumentality" as any entity controlled by the government of a foreign country that performs a function that the controlling government treats as its own. However, what constitutes control and what constitutes a function of the government are fact-bound questions to be decided on a case by case basis. The Eleventh Circuit, therefore, essentially adopted the DOJ's fact based approach looking at who runs the company, who appoints executives, and where the company's profits end up when determining whether the employees of that company qualify as "foreign officials."
The Supreme Court's denial of review means that the Eleventh Circuit's broad definition of "foreign official" will continue to be used by both the DOJ and SEC in their FCPA enforcement efforts. During oral argument before the Eleventh Circuit, the DOJ argued that governmental ownership of as little as 10% of an entity in conjunction with other factors could satisfy the DOJ's interpretation of "instrumentality." As the settlement values for resolving FCPA enforcement actions continue to increase and the government has made it clear that they intend to cast a wide net, this recent development is a further reason why it is imperative for all US companies doing business abroad to carefully continue scrutinizing foreign companies (if it has any interest owned by the government) and foreign representatives before providing payments or subsidies.
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