Record-setting Case Poised to Further Alter Landscape of FCPA Claims
In August 2011, a jury in the Southern District of Florida convicted Joel Esquenazi and Carlos Rodriguez, former executives of Miami-based Terra Telecommunications Corp., of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”), substantive FCPA violations and money laundering associated with paying bribes to officials of Telecommunications D’Haiti (“Haiti Teleco”), Haiti’s national telecommunications company. The indictment alleged that Esquenazi, Rodriguez and their co-conspirators paid over $890,000 in bribes to directors of Haiti Teleco in return for business advantages. The alleged bribes were recorded in Terra’s books and records as “commissions” or “consulting fees” to shell companies in violation of the FCPA’s books and records provisions. Esquenazi and Rodriquez were sentenced in October 2011. Esquenazi’s 15-year sentence is the longest ever imposed in an FCPA case by two times.
Esquenazi’s “Foreign Officials Defense”
The FCPA was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to “foreign officials” to assist in obtaining or retaining business. 15 U.S.C. § 78dd-2(a)(1). A “foreign official,” as defined in the Act, is “any officer or employee of a foreign government or any department, agency or instrumentality thereof.” 15 U.S.C. § 78dd-2(h)(2)(A). “Instrumentality” is not defined in the statute, leading a growing number of FCPA-defendants to challenge whether state-owned enterprises can be considered instrumentalities of a foreign government under the FCPA. In the district court, Esquenazi argued that mere control or partial control or ownership of an entity like Haiti Telecom by a foreign government does not make the entity’s employees foreign officials. The court rejected Esquenazi’s argument, finding that the plain language of the FCPA and the plain meaning of “foreign official” are such that Haiti Teleco, which was 97 percent state-owned by the Central Bank of Haiti, could be an instrumentality of the Haitian government and that the directors of the company could therefore be foreign officials.
Esquenazi’s record-setting case is now presenting the first opportunity for a court of appeals to weigh in on interpreting the term “foreign official.” Esquenazi filed an appeal in the 11th Circuit challenging his convictions asserting, inter alia, that he is entitled to an acquittal on all FCPA-based counts because the term “instrumentality” in the FCPA should be construed to encompass only foreign entities performing governmental functions similar to departments or agencies. Esquenazi argues that the government’s reliance on the premise that state-ownership or control of a business entity alone makes the entity an instrumentality is inconsistent with the language of the FCPA. Esquenazi’s appeal is not only a case of first impression for the Court of Appeals for the Eleventh Circuit, but also presents the first time that any circuit court will review the government’s broad definition of “foreign officials.”
The Eleventh Circuit’s decision in the Esquenazi appeal could coincide with forthcoming government guidance on the very terms at issue in the case. The DOJ announced on June 5, 2012 that pending guidance will address the terms “foreign official” and “instrumentality,” as well as companies’ compliance programs. It is unclear exactly when the guidance will be released, but it will shed further light on an area that has been plagued by ambiguity.