The FCPA and Bribery: We-know-it-when-we-see-it

By: Kelsey Quigley

On October 6, 2014, the United States Supreme Court denied a petition for writ of certiorari that requested review of a case brought under the Foreign Corrupt Practices Act of 1977 (“FCPA”) – the first substantive certiorari petition in the history of the statute.

The FCPA prohibits the “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to a “foreign official,” defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” In 2011, the United States District Court for the Southern District of Florida convicted two former executives of Miami-based Terra Telecommunications Corp. of various FCPA violations, including the payment of more than $890,000 in bribes to officials at Haiti’s state-owned sole provider of landline telephone services, known as Haiti Teleco. The court sentenced Carlos Rodriguez, Terra’s former vice president, to seven years in prison; Joel Esquenazi, Terra’s former president, received an unprecedented fifteen years in prison – the longest FCPA sentence ever imposed.

The certiorari petition followed the former executives’ unsuccessful appeal to the U.S. Court of Appeals for the Eleventh Circuit, requesting for the very first time in the FCPA’s nearly forty-year history, a review of the legal meaning of “foreign official” under the statute. Specifically, appellants challenged whether officials at state-owned Haiti Teleco were “foreign officials” under the FCPA’s “instrumentality” designation.

In its opinion, the Eleventh Circuit adopted an “instrumentality” interpretation similar to versions utilized by the Department of Justice and the Securities and Exchange Commission, holding that an “instrumentality” is any “entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” Explaining that this legal designation was necessarily “fact-bound,” the Eleventh Circuit provided potential indicia for the two elements required to designate a foreign government “instrumentality:” government control and government function. First, to determine government control, the Eleventh Circuit articulated, among other potential considerations, a government’s ability to hire and fire the entity’s employees and any government majority interest in the entity’s operations and profits – particularly in the context financial backing. Second, to assess whether the entity performs a function that the foreign government treats “as its own,” the Eleventh Circuit suggested that juries look to “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.” U.S. v. Esquenazi, 752 F.3d 912 (2014).

In the petition to the Supreme Court, counsel for Esquenazi and Rodriguez primarily challenged the adoption of the Eleventh Circuit’s “unacceptably broad,” “we-know-it-when-we-see-it” interpretation of a government “instrumentality.” Indeed, at its outer limits, the Eleventh Circuit’s definition seemed “illogical.” Theoretically, “a janitor working for U.S. Government subsidized General Motors could qualify as a ‘foreign official’ if General Motors were located overseas.” More, the petition explained that with this interpretation the statute would extend to “doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities.” These hypotheticals, while thought provoking, arguably overlooked the Eleventh Circuit’s practically fact-driven focus for discerning a foreign government’s “instrumentality.” Using the petition’s own example, General Motors may presently be under “government control” (having recently emerged from a government-backed Chapter 11 bankruptcy), but the company does not meet the Eleventh Circuit’s second element, government function. Along with individual shareholders, GM’s largest beneficial owners are both the Canadian and United States governments; the company does not enjoy a monopoly in American or in Canadian automobile sales; and the public does not perceive GM as serving a “governmental function.” Despite this inconsistency, counsel for the convicted former executives convincingly advocated for the adoption of an unambiguous formal definition of “foreign official” under the FCPA, especially as increasingly severe criminal sentences are imposed for FCPA violations.

The petition also contended that, in drafting the FCPA, Congress intended for a narrow interpretation of the term “instrumentality.” For example, the Foreign Sovereign Immunities Act (“FSIA”), passed just one year before the FCPA in 1976, specifically defines an “instrumentality” as any entity with a “majority of whose shares or other ownership interest is owned by a foreign state or political subdivisions.” Though this language likely applied to state-owned and operated Haiti Telecomm, petitioners argued that the absence of this language from the FCPA “warrants construing ‘instrumentality’ as excluding state-owned or state-controlled enterprises that are not political subdivisions and that do not perform core, traditional governmental functions.” Congress could have included the FSIA’s previously established definition in the FCPA, but chose not to: “[i]f Congress desires to go further [in defining an “instrumentality”…] it must speak more clearly than it has.”

Furthermore, in a joint amicus curae brief, free-market advocates Washington Legal Foundation and Independence Institute acknowledged that the definition of “foreign official” is “the single greatest source of confusion regarding the scope of the FCPA,” and thus of great international business interest. Therefore, as the petition noted, “the time is now ripe for this Court to settle the meaning of instrumentality under the FCPA” – as FCPA actions continue to pertain to “individuals who are not traditional government officials,” and before federal appeals courts publish conflicting opinions. It urged that the Supreme Court settle the question, so that valuable international business officials would not “be left to wonder whether the  [United States] [g]overnment will unilaterally declare their conduct criminal.”

Despite these legal questions, the Supreme Court declined to review the case. According to Southern Illinois University School of Law’s Professor Mike Koehler (who also authors the FCPA Professor blog), the Supreme Court likely declined the petition for writ of certiorari because of the lack of a “circuit split” on the issue. So far, only the Eleventh Circuit has ruled on the FCPA’s “foreign official” issue – largely a result of the SEC’s, the DOJ’s, and other enforcement agencies’ increasing use of alternative dispute resolution forums in FCPA cases. With only the Eleventh Circuit’s precedent and in a climate favoring alternative dispute resolution, questions surrounding the FCPA’s treatment of “foreign officials” who do not fit the more traditional definition, will likely go unanswered.

In an official statement that accompanied the conviction of Esquenazi and Rodriguez, Assistant Attorney General Lanny Breuer declared that violating the FCPA “is a serious crime with serious consequences” and that the federal government will “continue to hold accountable individuals and companies who engage in such corruption.” And yet, the Supreme Court persists in declining to review a fundamental tenet of the statute – what constitutes a “foreign official.” As successful FCPA actions become more prevalent, and especially as the subsequent punishments become increasingly severe, resolving the statute’s ambiguities will become critical to the equitable enforcement of international justice.

Kelsey Quigley is a J.D. Candidate at Berkeley Law. She is a student contributor for Travaux.