United States: DOJ Asserts That State-Owned Enterprises Are "Instrumentalities" Of A Foreign Government

For The Defense

New Development

In a brief filed in the Eleventh Circuit in United States v. Esquenazi, et. al, No. 11-15331, the U.S. Department of Justice asserted for the first time in federal appellate court that a state-owned company qualifies as an "instrumentality of a foreign government" and that therefore bribes paid to officials of the company may violate the Foreign Corrupt Practices Act ("FCPA"), 15 U.S.C. § 78dd-2.

Background

Last year, two former executives of Terra Telecommunication Corp. were convicted in federal district court in Florida of bribing employees of Haiti Teleco for the purpose of securing better calling rates and ensuring continued phone connection to Haiti. Until it was privatized in 2010, Haiti Teleco was a state-owned telecommunications company that served as the sole provider of landline telephone service in Haiti. Terra had entered into a series of contracts with Haiti Teleco that allowed its customers to place telephone calls to Haiti. At trial, the district judge instructed the jury that employees of a Haitian state-owned telecommunications company may be considered "foreign officials" under the FCPA because the company qualified as an "instrumentality of a foreign government."

After their convictions, the Terra executives appealed to the Eleventh Circuit, arguing that the jury instructions were erroneous and that the FCPA does not cover state-owned companies like Haiti Teleco because such companies do not perform a governmental function. In its responsive brief the U.S. Department of Justice disagreed. Arguing in favor of a broad reading of the FCPA, DOJ attorneys asserted that a "narrow interpretation of 'instrumentality' ignores the fact that governments perform many functions, including selling commercial services to the public, and they do so through entities other than 'departments' and 'agencies.'" Attorneys for the government also contended that the term "instrumentality" is not unconstitutionally vague, and that accordingly the defendants were on fair notice that their bribery scheme was illegal.

Conclusion and Advice

Should the Eleventh Circuit adopt the government's position with respect to the FCPA and state-owned enterprises, the scope of potential criminal liability under the FCPA may increase significantly. Business executives and corporate counsel for companies that engage in international business and enter into contracts with state-owned enterprises should be aware of this new development in FCPA enforcement and should make certain that appropriate policies and controls are in place to ensure compliance with the statute.

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