11th Circuit given question of FCPA 'instrumentality' definition

Michael P. Tremoglie Aug. 27, 2012, 4:15pm


PHILADELPHIA (Legal Newsline) - A case before the U.S. Court of Appeals for the 11th Circuit could decide the meaning of "foreign official" and "instrumentality" as two Florida men seek to overturn their 2011 convictions for bribing Haitian officials in violation of the Federal Corrupt Practices Act (FCPA).

But standing in the way of appellants Joel Esquenazi and Carlos Rodriguez is the U.S. Justice Department which argues in an Aug. 21 response brief that the men are wrong in their narrow interpretation of the terms.

For their roles in authorizing bribes to officials at Haiti Teleco (land line telephone service), Esquenazi received a 15-year sentence and Rodriguez a seven-year sentence after being convicted of one count of conspiracy to violate the FCPA and wire fraud; seven substantive counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering.

According to the DOJ, the defendants participated in a scheme to commit foreign bribery and money laundering from November 2001 through March 2005, during which time the telecommunications company paid more than $890,000 to shell companies to be used for bribes to Teleco officials. Esquenazi and Rodriguez authorized these bribe payments to successive directors of international relations at Teleco.

Their appeal has been termed "historic" by Professor Michael Koehler of Southern Illinois University School of Law, who blogs at FCPA Professor. It will be the first time an appellate court will rule on the meaning of the terms foreign official and instrumentality.

The issue is whether the meaning of the terms - which are contained but not defined in the FCPA - should be defined legislatively or whether the definitions of the DOJ's enforcement and case law continue to be used.

Koehler wrote a declaration in support of the motion by Esquenzai and Rodriguez to dismiss counts one through 10 of the indictment.

He said that "The FCPA defines 'foreign official,' as 'any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.'"

But Koehler noted in his declaration that the FCPA does not define the terms "department," "agency," or "instrumentality." Indeed, he says the definition has been left to the Justice Department, which has included employees of government owned entities.

This he says is "the functional and substantive equivalent of the DOJ alleging that General Motors Co. or American International Group Inc. is an 'instrumentality' of the U.S. government (given its ownership interests in these companies) and that all GM and AIG employees are therefore U.S. 'officials."'

The DOJ's response noted that "Defendants first raised their 'instrumentality' claim in a pre-trial motion to dismiss the indictment, and the district court denied it...The court concluded that 'the plain language of [the FCPA] and the plain meaning of [instrumentality] show that as the facts are alleged in the indictment Haiti Teleco could be an instrumentality of the Haitian government' and that the indictment 'sufficiently alleged that Antoine and Duperval (Haitian officials) were foreign officials by alleging that these individuals were directors in the state-owned Haiti Teleco.'"

The DOJ also rejected defendants' argument that the phrase, 'department, agency, or instrumentality" in the definition of "foreign official" is unconstitutionally vague.

Regarding Koehler's declaration, the DOJ said, "Defendants rely on a 144-page declaration by Professor Michael J. Koehler that was filed on behalf of the defendants in Carson ....Although defendants suggest that this Court may take judicial notice of the declaration because it relates to legislative history, the declaration selectively reviews the legislative history and draws inferences in support of a defense motion to dismiss the indictment.

"As such, it is not necessarily the statement of a disinterested expert, it was not reviewed as a scholarly article, and it was never subject to impeachment in the case below. Even the district court in Carson did not rely on the declaration because it concluded that 'resort to the legislative history of the FCPA [was] unnecessary.'

"If the Court is inclined to consider the Koehler affidavit, the government asks the Court to similarly consider the declaration of FBI Special Agent Brian Smith, also filed in Carson, that discusses references to SOEs in the legislative history."

All of this reveals some of the problems involved in the enforcement of the FCPA. For its part, the DOJ, in its response brief, claims the appellants are defining the term public official too narrowly.

Jay Shapiro, an attorney for the New York office of White and Williams, a former prosecutor with the Bronx and Brooklyn District Attorney's office who is currently involved in commercial litigation, believes the DOJ will prevail in the appeal case.

"The problem is there is no definition of instrumentality," Shapiro said. "The government does a good job addressing the controversy in its reply to the Esquenazi appeal. But this is such a new area.

"Also, clarity is needed in terms of how the statute fits. It currently fits the governmental practices of the United States. It does not necessarily fit the structure of foreign governments and their practices. If you go to a foreign country as I did recently to talk about these issues you understand this."

Shapiro also said that companies that do business abroad already know about understanding and coping with foreign laws and foreign business practices.

He said the idea is to help foreign countries create the conditions where bribery would be less of a factor. But, he said, we also need to more clearly define the terms of the FCPA and how the statute is enforced.

American law needs to be able to define it more strictly, he said.

Lucinda A. Low, a partner with the Washington D.C. law firm of Steptoe and Johnson and the head of its FCPA practice, does not believe that American businesses are reluctant to enter foreign markets because of the FCPA.

"To be precise, the statute does define the term foreign official, it does not define the term instrumentality," she said. "The ambiguity (that) tends to give rise to litigation is with regard to state enterprises - as to whether they are an instrumentality. That has been historically the case."

Low is a member of the American Society of International Law, and that group's former vice president.

"I do not think there is any empirical evidence that American businesses are reluctant to go into developing countries," she said. "I do a lot of work for American businesses in the extractive industries. They know they have to be more cautious."

Historically, she noted, there was the concern that the U.S. was acting unilaterally and that the FCPA was imposing an undue burden to businesses operating overseas. She observed that there are still concerns that the FCPA sweeps too broadly. This debate has been rekindled because of the increased enforcement in recent years.

James C. Dunlop, an attorney with Jones Day in Chicago, represents companies and individuals in criminal enforcement matters. He also counsels and conducts internal investigations for companies concerned about foreign corrupt practices.

He said that the FCPA was designed to create a level playing field for companies abroad. He does not think the law is primarily enforced for foreign policy reasons. He said that other countries are developing statutes and there is starting to be a conversion to a global corruption standard. He too thinks the FCPA terms need clarification.

"Without commenting on any specific case, defining the term instrumentality and the interpretation of the term foreign official are valid issues," Dunlop said.

"The Justice Department definition has been expanded to mean even where there is less than 25 percent of government ownership the employees are foreign officials. This makes anybody who is an employee of the entity a foreign official including the janitor. You do not have to be in management.

"While I think it is appropriate for the American government not wanting to foster corruption and to take steps to eliminate and prosecute it, I take issue with current interpretations of the act by the DOJ. I have called on Congress to amend the act."

He observed that companies are confused and find the current interpretations of the FCPA by the government disconcerting. He made it very clear though that he believes that American businesses should not "take our foreign markets as we find them." But the government should make compliance easy.

"I have known companies that leave a market because of the problems with enforcement," Dunlop said. "I do not subscribe to the view that we should take our foreign markets as we find them. I think it is beneficial overall for American companies to operate in a way to promote transparency. But we have to make it easy for companies to do this. I think the DOJ should set a standard for compliance by issuing some guidance."

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