When Is A Corporate Officer A 'Foreign Official'?

Under the FCPA, a Foreign Corporation Can Still Be a Government Instrumentality Does the Distinction Matter?

On May 16, 2014, in Esquenazi v. United States, a United States federal appellate court upheld the criminal convictions of two American business owners under the Foreign Corrupt Practices Act ("FCPA"), which prohibits payments to foreign government officials for the purpose of "obtaining or retaining business."1

This Stroock Special Bulletin looks at the Esquenazi decision, in which the court also provided some guidance – though not full clarity – on when employees of state-owned or controlled enterprises qualify as foreign officials under the FCPA.2

Background

Joel Esquenazi and Carlos Rodriguez co-owned Terra Telecommunications Corporation ("Terra"), a Florida telecommunications company that purchased phone time from foreign vendors and resold the minutes to U.S. customers. Esquenazi was the president and CEO, and Rodriguez was the executive vice president of operations. Telecommunications D'Haiti, S.A.M. ("Teleco") was a foreign vendor from which Terra purchased minutes.

When Terra became indebted to Teleco, Teleco's Director General proposed that Terra funnel side payments to him in exchange for his agreeing to alleviate Terra's debt. Terra accepted his offer, and made payments from about November 2001 until March 2005 to the Director General and other Teleco officials. To conceal the illicit nature of the payments, Terra created and routed the bribes through intermediate sham companies under "consulting" and "commission" agreements.

Esquenazi and Rodriguez were convicted by a jury in 2011 on 21 counts of conspiracy, money laundering, and violating the FCPA. Because of the FCPA allegations and the need to prove that "foreign officials" received payments, Teleco's relationship to the Haitian Government was at issue. Thus, the prosecution presented expert testimony that: (1) Teleco was owned and controlled by the Haitian government at the time the bribes were made (i.e., until it was privatized between 2009 and 2010); (2) before it was privatized, Teleco was 97 percent owned by one of Haiti's state-owned national banks, and the Haitian president appointed all of its board members; and (3) in 2008, Haiti enacted an anti-corruption law that expressly cited Teleco as a public administration and required all of its agents to declare their assets to avoid secret bribes. Although the prime minister of Haiti submitted a declaration post-trial stating that "there exists no law specifically designating Teleco as a public institution," the district court denied motions by the defendants for a judgment of acquittal and a new trial on the basis of the prime minister's declaration.

Mr. Esquenazi received a sentence of 15 years in prison, the longest FCPA-related incarceration imposed to date; Mr. Rodriguez received a sentence of 7 years. Both appealed their convictions to the Eleventh Circuit Court of Appeals.

The Eleventh Circuit's Opinion

In an opinion unanimously adopted by a three-judge panel, the Eleventh Circuit affirmed the convictions of both Esquenazi and Rodriguez.

On appeal, the main argument that Esquenazi and Rodriguez advanced – unsuccessfully – was that the payments to Teleco officials were not unlawful under the FCPA, because the statute defines a foreign official as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof" (emphasis added).3 Esquenazi and Rodriguez argued that Teleco was not an instrumentality of the Haitian government, and its officials therefore were not "foreign officials" under the FCPA.

Because no other federal appellate court has addressed the issue, the Eleventh Circuit looked to international as well as domestic law to assess what might qualify an entity as an "instrumentality" under the FCPA. Although the court cited U.S. Supreme Court and other Eleventh Circuit decisions on whether various entities qualified as government instrumentalities under U.S. law,4 it relied more heavily on the Organisation of Economic Co-operation and Development ("OECD")'s 1997 Anti-Bribery Convention ("the Convention"). The Convention was one of the main catalysts for anti-corruption legislation worldwide, and prompted amendments to the FCPA in 1998 to...