Companies doing business internationally no doubt have heard about the rise in claims brought by government agencies against companies and individuals under the Foreign Corrupt Practices Act (FCPA). Our last article focused on ways expenses in defending against such claims — often substantially greater than the amount for which the claims are ultimately resolved — can be contained.
A new decision, U.S. v. Esquenazi, was issued by the 11th Circuit on May 16, 2014, that carefully examines the tests required to determine whether in a given situation the FCPA has, or has not, been violated. The decision, a rare one despite the burgeoning number of prosecutions under the FCPA, clarifies but yet does not simplify what the applicable criteria for prosecution and conviction are. Pertinent to the role of corporate counsel overseeing the defense of such investigations and prosecutions, the decision in fact demonstrates just how wide ranging and fact intensive such an investigation and prosecution might become.
Messrs. Esquenazi and Rodriguez appealed their convictions in the district court for violating the FCPA. Their business, a long distance telephone minutes brokerage company, was found to have gained a lowered debt from a telephone company that was an instrumentality of the government of Haiti in exchange for the promise of bribery payments to Haitian officials.
Rejecting appellants’ challenge to the Act for vagueness and their assignments of error concerning withheld evidence and the jury instructions, the court of appeals affirmed the judgment of conviction.
The FCPA prohibits bribes paid to “any foreign official,” defined by the FCPA as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” The central question before the court was what “instrumentality” means, and whether the Haitian telephone company, Teleco, qualifies as one. The term “instrumentality” is described in the Act as an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Yet the FCPA does not specify what constitutes control and what constitutes a function the government treats as its own. As the court of appeals observed, these are factbound questions. Thus, the court turned to a number of sources, including the dictionary definition, relationship to other terms in the FCPA, the FCPA’s context and legislative history, and both expert and percipient witness testimony, to derive the meaning.
While the court of appeals found that in the case before it, the entity readily qualified as a government instrumentality under almost any definition it could craft, significantly, the court set forth further guidance as to what an instrumentality within the meaning of the FCPA is. “An ‘instrumentality’ under section 78dd2(h)(2)(A) of the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are factbound questions. . . . For today, we provide a list of some factors that may be relevant to deciding the issue. [Paragraph] To decide if the government ‘controls’ an entity, courts and juries should look to 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; and the length of time these indicia have existed.”
Likewise, the court set forth some factual criteria regarding the issue of whether the entity performs a function the government treats as its own. “Courts and juries should examine 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; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”
A separate but essential aspect of a conviction under the FCPA, as the court of appeals observed, is whether bribe payments made by the accused were “made to any person while knowing that all or a portion of such money or thing of value will be offered, given or promised directly or indirectly to any foreign official.” Appellants challenged the trial court’s jury instructions on the knowledge issue, but the court of appeals found them to be a correct statement of the law. The court further noted such knowledge could be actual or implied.
The court examined one of the appellants’ state of mind regarding his knowledge of whether Teleco was a Haitian “instrumentality” and Teleco employees were foreign officials. On this issue, the court adverted to trial testimony from the appellants’ insurance broker regarding a policy of political risk insurance appellants had sought on a contract with Teleco, which, according to the broker, appellants described as “wanting to insure contracts with foreign governments.” The court of appeals concluded, “that evidence was sufficient to support a jury finding that Mr. Rodriguez knew Teleco was an instrumentality of the Haitian government. And because it is undisputed that he knew Messrs. Antoine and Duperval were Teleco employees, that evidence supports a finding he knew they qualified as foreign officials under the FCPA.”
The Esquenazi decision illuminates the numerous, complex factual questions that must be resolved to satisfy the legal requirements for a prosecution proceeding under the FCPA. In so doing, the decision also underscores the importance that a defense to such a prosecution be handled efficiently and costeffectively.