Last Friday, the 11th Circuit issued its long-awaited “foreign official” decision – the first time in FCPA history in which an appellate court addressed the prominent enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA.
This prior post – the first to report on the decision – extracted the entirety of the court’s decision relevant to the “foreign official” issue.
The decision, of course, was based on the unique facts of the case and in this regard the court stated that Haiti Teleco “would qualify as a Haitian instrumentality under almost any definition we could craft …”. Elsewhere, the court stated it had “little difficulty concluding sufficient evidence supported the jury’s necessary finding that Teleco was a Haitian instrumentality.”
Prior to discussing this case specific issue, the court stated:
“[W]e must define ‘instrumentality’ for purposes of the FCPA.
We begin, as we always do when construing statutory text, with the plain meaning of the word at issue. According to Black’s Law Dictionary, an instrumentality is ‘[a] means or agency through which a function of another entity is accomplished, such as a branch of a governing body.’ Webster’s Third New International Dictionary says the word means ‘something that serves as an intermediary or agent through which one or more functions of a controlling force are carried out: a part, organ, or subsidiary branch esp. of a governing body.’
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In the FCPA, the company ‘instrumentality’ keeps is ‘agency’ and ‘department,’ entities through which the government performs its functions and that are controlled by the government. We therefore glean from that context that an entity must be under the control or dominion of the government to qualify as an ‘instrumentality’ within the FCPA’s meaning. And we can also surmise from the other words in the series along with ‘instrumentality’ that an instrumentality must be doing the business of the government.
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The Supreme Court has cautioned that ‘the concept of a ‘usual’ or a ‘proper’ governmental function changes over time and varies from nation to nation.’ That principle guides our construction of the term ‘instrumentality.’ Specifically, to decide in a given case whether a foreign entity to which a domestic concern makes a payment is an instrumentality of that foreign government, we ought to look to whether that foreign government considers the entity to be performing a governmental function. And the most objective way to make that decision is to examine the foreign sovereign’s actions, namely, whether it treats the function the foreign entity performs as its own. Presumably, governments that mutually agree to quell bribes flowing between nations intend to prevent distortion of the business they conduct on behalf of their people. We ought to respect a foreign sovereign’s definition of what that business is.’
“[M]indful of the needs of both corporations and the government for ex ante direction about what an instrumentality is,” the court then provided the following definition – the key language of the decision.
“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract. […] [W]e do not purport to list all of the factors that might prove relevant to deciding whether an entity is an instrumentality of a foreign government. For today, we provide a list of some factors that may be relevant to deciding the issue.
To decide if the government ‘controls’ an entity, courts and juries should look to the foreign government’s formal designation of that entity; whether the government has a majority interest in the entity; the government’s ability to hire and fire the entity’s principals; the extent to which the entity’s profits, if any, go directly into the governmental fisc, and, by the same token, the extent to which the government funds the entity if it fails to break even; and the length of time these indicia have existed.
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We then turn to the second element relevant to deciding if an entity is an instrumentality of a foreign government under the FCPA — deciding if the entity performs a function the government treats as its own. Courts and juries should examine 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.”
