An FCPA anti-bribery offense requires five essential elements: (1) Corruptly (2) paying or promising to pay (3) anything of value (4) to a foreign official (5) for the purpose of obtaining or retaining business or securing any improper advantage. Each element has been contentious, but none more than the fourth element — “foreign official.”
One result of all the “foreign official” contention is a judicial record deep by FCPA standards. Several FCPA defendants — mostly individuals facing criminal prosecution — have argued there was no foreign official involved in their bribe paying and therefore no FCPA anti-bribery offense.
That argument hasn’t succeeded at trial. But it has forced courts to consider carefully who’s a foreign official under the FCPA.
In the FCPA Resource Guide, the DOJ and SEC recap the judicial record related to “foreign officials.” I rely on the Guide’s narrative and case citations for much of what follows.
When Congress defined “foreign official” — using any five times — it signalled broad coverage of the anti-bribery provisions.
The FCPA says (with my emphasis),
The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
It’s usually not hard to recognize a government, department, or agency. But what is an “instrumentality” of a foreign government? How do we recognize an instrumentality and thus its “foreign-official” employees?
The leading FCPA case on point is U.S. v. Esquenazi, 752 F.3d 912 (11th Cir. 2014). The Eleventh Circuit, while examining Haiti’s state-run telecommunications company, said an instrumentality is “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”
The Eleventh Circuit’s opinion, which the U.S. Supreme Court declined to review, set out a two-step test for control and function.
Step One: While each case rests on a fact-based inquiry, the court said, a non-exhaustive list of factors can be used to determine whether the government “controls” an entity:
- 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 fiscal accounts and to which the government funds the entity if it fails to break even, and
- the length of time these indicia have existed.
Step Two: The Eleventh Circuit used a second non-exclusive list of factors to determine whether the entity performs a function that 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, and
- whether the foreign country’s public and government generally perceive the entity to perform a governmental function.
Before and after Esquenazi, federal district courts in other circuits — in Maryland, Connecticut, and California — approved criminal jury instructions similar to the Eleventh Circuit’s two-part “instrumentality” test. Those other cases include U.S. v. Lambert (2019), U.S. v. Hoskins (2019), U.S. v. Carson (2011), and U.S. v. Aguilar (2011). And various courts have found instrumentalities in aerospace and defense manufacturing, banking and finance, healthcare and life sciences, energy and extractive industries, telecommunications, and transportation.
Control is more determinative than ownership. For example, in 2010 the DOJ and SEC penalized Paris-based Alcatel-Lucent S.A. $137 million for bribing officials in Costa Rica, Honduras, Taiwan, and Malaysia.
In Malaysia, bribes went to employees of a telecommunications company that was only 43 percent owned by Malaysia’s Ministry of Finance. But the Ministry of Finance could veto all major expenditures and control important operational decisions, and most senior company officers were political appointees. The DOJ and SEC deemed the telecomm an instrumentality of the Malaysian government and its employees foreign officials.
Incidentally, there’s nothing new about what some call the feds’ “expansive” view of instrumentalities. As the FCPA Resource Guide says,
DOJ and SEC have pursued cases involving instrumentalities since the time of the FCPA’s enactment and have long used an analysis of ownership, control, status, and function to determine whether a particular entity is an agency or instrumentality of a foreign government.
(In 1988, Congress amended the FCPA to expand the definition of “foreign official” to include employees and representatives of public international organizations. A “public international organization” is any organization designated by Executive order under the International Organizations Immunities Act or any other organization that the President designates.)
Finally, the feds caution FCPA defendants against relying on the instrumentality argument for another reason: Even if they beat FCPA anti-bribery charges, they might still face prosecution.
From the FCPA Resource Guide:
Companies and individuals should also remember that, whether an entity is an instrumentality of a foreign government or a private entity, commercial (i.e., private-to-private) bribery may still violate the FCPA’s accounting provisions, the Travel Act, anti-money laundering laws, and other federal or foreign laws. Any type of corrupt payment thus carries a risk of prosecution.
At least for now, the debate about what’s an instrumentality seems to have subsided. No doubt some future FCPA defendant will again challenge the so-called expansive view of who’s a foreign official. And who knows? Despite the words of the FCPA and the weight of precedent, a federal judge or jury might someday agree.
But I wouldn’t bet my FCPA defense on it.