Appeals Court Says FCPA Applies to State-Owned Companies, Sets New Definition for 'Foreign Official'
The U.S. Court of Appeals for the 11th Circuit recently issued an opinion that for the first time delineated the application of the Foreign Corrupt Practices Act to state-owned companies. The Appeals Court on May 16 found that bribing officials at foreign companies is illegal and punishable under FCPA, so long as the concern is controlled by the foreign government and performs a function it treats as its own, and upheld the lengthy prison sentences of two Florida men for bribing officials at a Haitian company.
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Case Involved Longest Ever FCPA Prison Sentence
Joel Esquenazi and Carlos Rodriguez had been convicted in the U.S. District Court for the Southern District of Florida in 2011. Esquenazi and Rodriguez co-owned Terra Communications, and were found guilty of FCPA violations related to bribes paid to an official at Haitian telecom monopoly Telecommunications D’Haiti (Teleco) in order to get some debts forgiven. Teleco isn’t an agency of the Haitian government, but was almost entirely owned by the central bank of Haiti and had its board of directors appointed by the Haitian president. The 15-year prison sentence for Esquenazi is the longest ever imposed for FCPA violations, according to the FCPA Blog (here).
No Previous Definition of FCPA 'Instrumentality'
The main issue in the case was whether the Teleco employee was a “foreign official.” The FCPA makes it illegal to bribe any “foreign official” for the purpose of “influencing any act or decision of such foreign official” for the purpose of assisting with “obtaining or retaining business for or with, or directing business to, any person.” A foreign official under the law is “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The government argued that Teleco was an “instrumentality.” But Esquenazi and Rodriguez said that Teleco provided a commercial service, not a core government function as required under the FCPA. According to the 11th Circuit, no other appeals court had ever weighed in on the issue.
Appeals Court Requires State Control, Government Function
The Appeals Court relied on Organization for Economic Cooperation and Development’s bribery convention, as well as Supreme Court cases involving other laws, to find that an “instrumentality” is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” It set several criteria for courts and juries to follow when deciding whether a government “controls” an entity, as follows:
- The foreign government’s formal designation of that entity
- Whether the government has a majority interest in the entity
- The government’s ability to hire and fire the entity’s principals
- The extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even
- The length of time these indicia have existed
It also set the following criteria for deciding whether the entity “performs a function the controlling government treats as its own”:
- Whether the entity has a monopoly over the function it exists to carry out
- Whether the government subsidizes the costs associated with the entity providing services
- Whether the entity provides services to the public at large in the foreign country
- Whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function
The 11th Circuit found that Teleco qualified as an instrumentality under its new definition, and that bribing a Teleco official thus violated the FCPA. It upheld the convictions of Esquenazi and Rodriguez, as well as their 15-year and seven-year sentences, respectively.
(U.S. v. Esquenazi and Rodriguez, 11th Circ. 11-15331, dated 05/16/14)