Court Of Appeals Hands Down Landmark FCPA Ruling Defining The Term 'Instrumentality'

Federal appellate court decisions interpreting the Foreign Corrupt Practices Act (FCPA) are rare. Very rare. Indeed, in the statute's 36-year history there have been barely more than a handful of appellate court decisions analyzing the meaning of the different provisions of this complex statute with which multinational corporations and scores of business executives must grapple on a daily basis.1 On Friday, May 16, 2014, the Eleventh Circuit Court of Appeals issued a landmark ruling addressing for the first time the definition of the term "instrumentality" as it appears in the FCPA. That case, captioned United States v. Joel Esquenazi and Carlos Rodriguez,2 affirmed the convictions and sentences of both defendants, and in so doing, upheld the longest sentence in the FCPA's history, Esquenazi's 15-year sentence.3

The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) understandably view this decision as validating their broad interpretation of who qualifies as a "foreign official" under the FCPA.4 At a compliance conference held just after the release of this decision, the heads of the FCPA Units at both the DOJ and SEC, Patrick Stokes and Kara Brockmeyer, respectively, described the ruling as an "important," "seminal" decision on a critical issue and said that they drew comfort from the appellate court embracing the DOJ and SEC's approach to this issue.

While this is the first time an appellate court has defined the term "instrumentality," companies hoping for additional clarity through the creation of either a bright-line rule or a clearly defined test will be disappointed, as the Esquenazi court embraced the non-exhaustive multi-factor test endorsed by the government and adopted by a number of district courts that faced the same issue.5

BACKGROUND FACTS

To summarize our previous Client Alerts (here, here, and here) the Esquenazi case involved a Miami telecommunications company called Terra Telecommunications (Terra) - whose business involved re-selling international long distance telephone call time - and two of its executives, Joel Esquenazi and Carlos Rodriguez, who were involved in a scheme to bribe various persons working for Telecommunications D'Haiti, S.A.M. (Teleco), which provides telecommunications services in Haiti. Esquenazi and Rodriguez were charged in a 21-count indictment with conspiracy to violate the FCPA and commit wire fraud, conspiracy to launder money, and substantive counts of FCPA violations, wire fraud, and money laundering.6 At one point Terra owed $400,000 to Teleco, and Esquenazi and Rodriguez hatched a plan with Teleco's Director of International Relations, Robert Antoine, in which Antoine would "shave minutes from Terra's bills to Teleco in exchange for receiving from Terra fifty percent of what the company saved."7 Those payments were disguised through certain sham companies and bogus "consulting agreements." In total, Esquenazi and Rodriguez paid Antoine and his associates $882,000. When another Teleco Director of International Relations, Jean Rene Duperval, was appointed, Esquenazi and Rodriguez continued the bribery scheme with Duperval. Again, they used a third-party intermediary, a shell company, and a bogus consulting agreement to facilitate nearly $400,000 of bribes funneled to Duperval.8

At trial, Esquenazi and Rodriguez contended that Antoine and Duperval were not "foreign officials" under the FCPA because Teleco was not part of a foreign government and, as a commercial enterprise, Teleco could not qualify as an "instrumentality" of a foreign government.

Recognizing that this was a central defense, the government introduced evidence to support that Teleco was, in fact, an instrumentality of the Haitian government, given that: (a) the Haitian government owned 97% of Teleco; (b) at Teleco's inception, it was given a monopoly on telecommunications services in Haiti; (c) Teleco was given significant tax advantages; (d) the Haitian government appointed two members of Teleco's board; (e) the...