Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.

Get updates on Compliance Week offerings, including new features, databases, research, and other resources, along with announcements of upcoming Webcasts, conferences, seminars, CPE/CLE opportunities and more.

Published every Thursday, Compliance Week Europe offers a condensed summary of risk, audit, and compliance news either originating in Europe, or of special interest to European compliance professionals. This newsletter will follow developments by the European Commission, as well as those of national governments across the region, or any U.S.-based news that might have consequence across the Atlantic. Frequency: weekly; Thursday a.m.

A fresh edition of Compliance Week delivered via e-mail and online every Tuesday morning, relentlessly focused on the disclosure, reporting and compliance requirements of our 25,000+ paying subscribers.

Published every Friday, Compliance Weekend was launched at the behest of subscribers, and offers a quick Plain English review of the week's key developments. We hope you enjoy this supplement to Compliance Week's Tuesday edition.

Justice Department Drops Hints on FCPA 'Instrumentality'

Jaclyn Jaeger | August 22, 2012

The Justice Department filed a legal brief Tuesday that offers more clues about how it defines an “instrumentality” under the Foreign Corrupt Practices Act, one of the most vague and nettlesome parts of the anti-bribery law.

The case stems from a federal jury's conviction last year of Joel Esquenazi and Carlos Rodriguez for their roles in a scheme to bribe officials at Haiti Telecom, a Haiti state-owned telecommunications company.

According to FCPA Professor Mike Koehler, the Haiti Teleco case marks “the first time in FCPA history that an appellate court—as opposed to a trial court—is going to be squarely faced with the DoJ interpretation of ‘foreign official'.”

Most significant about the Haiti Teleco case is that defense lawyers asked the judge to dismiss FCPA accounts due to the ambiguity around the term “instrumentality.” The FCPA prohibits U.S. companies and employees from paying bribes to foreign officials to obtain business abroad, but the law vaguely defines “foreign official” to mean an “officer or employee of a foreign government or any department, agency, or instrumentality thereof.”

Defense attorneys argued that foreign state-owned enterprises—as opposed to government agencies—should not be covered by FCPA because state-owned entities are not an instrumentality. In the case, however, the district judge denied that motion.

On Aug. 12, the Justice Department filed its response brief in the appeals court case. “The district court's instructions on the meaning of ‘instrumentality of a foreign government' were correct,” the Justice Department wrote. “The instructions stated that an instrumentality must perform a governmental function and provided a non-exhaustive list of relevant factors for the jury to consider in deciding whether Teleco was an instrumentality of the government of Haiti.”

In this case, the evidence “sufficiently established that Teleco was an instrumentality of Haiti during the relevant time period,” the Justice Department wrote. According to court documents, the government, through its national bank, owned 97 percent of Teleco's shares. If Teleco had been profitable, those profits would have accrued to the government and the national bank. Because it was not, the national bank subsidized Teleco.

The district court and the Justice Department further noted that Haiti's president and high-level ministers controlled Teleco through their appointment of Teleco's board of directors and general director. Teleco's status as a government instrumentality is also reflected in Haitian law that subjected Teleco officials to its prohibitions against official corruption.

Based on its response brief, the Justice Department offers companies a fairly clear indication of where it stands on the definition of an instrumentality. Thus, companies may determine whether a foreign state-owned enterprise is an instrumentality of the government by considering factors including but not limited to:

  • Whether the foreign state-owned enterprise provides services to the citizens and inhabitants of that country;
  • Whether its key officers and directors are government officials or are appointed by government officials;
  • The extent of the government's ownership of foreign state-owned enterprise, including whether the government owns a majority of its shares or provides financial support such as subsidies, special tax treatment, loans or revenue from government-mandated fees;
  • The foreign state-owned enterprise's obligations and privileges under the government's law, including whether its exercises exclusive or controlling power to administer its designated functions; and
  • Whether the foreign state-owned enterprise is widely perceived and understood to be performing official or government functions.

In the Haiti Teleco case, the Justice Department further wrote in its response brief that “the term ‘instrumentality' is also not unconstitutionally vague. It provided fair notice that defendants' bribery scheme, which involved intentional conduct and had no innocent explanation, was illegal.”

“Moreover, defendants cannot complain that they were left guessing about the legality of their actions when they could have requested an opinion on that question from the Attorney General but did not do so.”