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United States v. Esquenazi: Will the Eleventh Circuit Clarify the FCPA's Use of "Instrumentality" and "Government Official"?

LexisNexis┬« Emerging Issues Analysis | August 2012
by: Jay Shapiro

American corporations that do business abroad, even if they are only working with associated foreign business partners, must be comfortable with the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq., its requirements, the need for compliance and the threats of civil and criminal enforcement. The FCPA provides both civil and criminal compliance, investigative and prosecution tools to the federal government, directed at illegal activity between businesses and foreign officials. Unlike the United Kingdom’s Bribery Act, which applies to commercial bribery as well as acts that involve official corruption, the FCPA’s principal focus is to prevent payments by individuals and corporations to foreign officials to retain or obtain business.

Those who conduct international business ventures readily acknowledge the difficulties inherent in understanding and coping with foreign statutes and regulations. However, a case currently pending before the Court of Appeals for the Eleventh Circuit reveals that significant arguments can also be offered concerning the degree of clarity found in the language of the FCPA. In United States v. Esquenazi, No. 11-15331-C, the meaning of “foreign official,” and the application of the term “instrumentality” are critical to the resolution of the appeal.

This prosecution involved a federal investigation into activities of a company from Miami, Terra Communications, and its relationship from 2001 to 2004 with the national telecommunications company of Haiti, Telecommunications D’Haiti (“Haiti Teleco”). The FCPA charges contained in the indictment describe that the Terra executives used intermediaries to make almost one million dollars in payments to Haiti Teleco executives in exchange for lower rates and other business advantages. The payments were made to Robert Antoine and Jean Rene Duperval, Haiti Teleco employees, and Joel Esquenazi and Carlos Rodriguez, who owned Terra, were alleged to have been behind the payments.

Before the trial, the defense moved to dismiss, arguing that Antoine and Duperval were not foreign officials; Haiti Teleco was not an instrumentality of the government of Haiti; and that the FCPA’s definition of foreign official to include “any department, agency, or instrumentality” is unconstitutionally vague. The motion was denied, although the District Court did indicate that there were factual issues that needed resolution. In making arguments concerning jury instructions, the defense again raised these issues but to no avail. The defendants were convicted and Esquenazi received fifteen years in prison and Rodriquez was sentence to seven years.

After the verdict was returned but before sentencing the Government produced a declaration from the Prime Minister of Haiti that stated Haiti Teleco “has never been and is not a State enterprise.” This declaration was actually executed more than one week before the trial concluded. A second declaration from the Prime Minister was produced by the Government, again prior to sentencing. This declaration apparently was used by the prosecution to clarify the first one, and it said in part that the Prime Minister was unaware that the first declaration:

was going to be used in criminal legal proceedings in the United States or that it was going to be used in support of the argument that, after the takeover by BRH [Bank of the Republic of Haiti] and before its modernization, [Haiti Teleco] was not part of the Public Administration of Haiti. This is obviously not the case since, during that time, [Haiti Teleco] belonged to BRH, which is an institution of the Haitian state. That document had been signed strictly for internal purposes and to be used in support of the on-going modernization process of [Haiti Teleco].

In their appeal, the defendants are presenting Brady claims concerning the first of the Prime Minister’s declarations, maintaining that the information it contained should have been disclosed earlier. As to the specifics of the FCPA arguments, the essence of the instrumentality argument is that Haiti Teleco did not constitute a department or agency of the Haitian government so that it would be covered by the statute. On appeal, the defense maintains that the prosecution’s theory at trial was that the instrumentality definition applied since the National Bank of Haiti owned 97% of Teleco’s stock (Teleco was founded in 1968 as a private company) and the Haitian government had the right to appoint two board members.

Clearly, the issue raised on appeal as to whether the two men who received the payments were government officials is inextricably linked to the question of whether Haiti Teleco is an instrumentality as that word is used in the statute. The language of the statute crystalizes this question: “foreign official” is defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof” or “any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality....” 15 U.S.C. § 78-dd-2 (h)(2)(A). The word, instrumentality, however, is not defined.

While the Government’s position on appeal will likely be the same as it was at trial—that the ownership of Haiti Teleco and its corporate structure demonstrate factually that it is an instrumentality—the appellants’ contention is that although a business may be owned by a government it is not an instrumentality as that term is envisioned by the statute when it does not perform any governmental functions.

Additionally, the appeal raises the issue whether the FCPA is unconstitutionally vague in its failure to define instrumentality. In the brief filed on behalf of Esquenazi, his lawyers argue that without more, the term could include:

1) government bureaus akin to a department or agency, like the FBI or SEC; 2) quasiofficial agencies, like the Legal Services Corporation; 3) government-run programs or businesses, like the TVA; 4) programs or businesses that a government has invested in, provided funding for, or licensed, like AIG or GM; 5) businesses that have received government tax breaks or other incentives, like nearly every company in the United States; 6) an entire regulated industry, like agriculture, banking, or telecommunications; 7) privatized, government-formed companies, like Fannie Mae; 8) government contractors; or even 9) completely private businesses that step in to take the place of former government-run programs.

The most logical contentions underlying the vagueness argument is found in an examination of the FCPA statute. It is clear from the Department of Justice’s statements that it considers it a significant goal of the FCPA to combat briberies aimed at having government officials abuse their official position in order for the briber to gain or maintain a business advantage. It is not merely a commercial bribery statute.

Because of the potential impact that the Eleventh Circuit’s ruling could have on the application of the FCPA these appeals will be closely monitored. An opinion rejecting the defense arguments could conceivably broaden the potential application of this statute, which already has corporations placed in difficult situations when interacting with foreign entities. A ruling for the defense may very well necessitate legislative action to draft clarifying language for the concept of instrumentality.

Reproduced by White & Williams LLP with the permission of LexisNexis.  Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.  All rights reserved.  No copyright is claimed as to any portion of the original work prepared by a government officer or employee as part of that person’s official duties.

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This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation and legal questions.
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