On May 16, 2014, in United States v. Esquenazi, the U.S. Court of Appeals for the Eleventh Circuit issued the first appellate opinion considering the scope of the term “foreign official” under the Foreign Corrupt Practices Act. In the long-awaited opinion, the court concluded that a Haitian state-owned telecommunications company was a government “instrumentality,” and its employees therefore were foreign officials for purposes of the statute.
The Esquenazi decision is of special significance to medical device companies, because it can be expected to guide future courts and enforcement authorities when assessing whether employees of non-U.S. state-owned entities — including companies and institutions in the healthcare and life sciences sectors, particularly in countries with public or quasi-public healthcare systems — are “foreign officials” under the FCPA.
In the decision, the court defined a government “instrumentality” under the FCPA’s anti-bribery provisions as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The court noted that the meaning of “control” and of “a function the government treats as its own” are “fact-bound questions,” but also offered an illustrative list of factors to be considered in making this fact-specific determination.
In determining government control, the court suggested looking at the following factors:
- the “foreign government’s formal designation of that entity”;
- “whether the government has a majority interest”;
- “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 [treasury], 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.”
In deciding whether an entity performs a function the government treats as its own, the court suggested examining:
- “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 country; and
- “whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”
As a practical matter, however, the court’s definition of “instrumentality” should have limited impact on the day-to-day decisions companies make concerning their efforts to comply with the FCPA and other anti-corruption laws. The appeals court’s standard is broadly in keeping with how other courts, enforcement authorities, and practitioners have previously viewed the issue. And, because other anti-bribery laws apply to private sector bribery as well as public sector corruption, companies increasingly are framing their anti-corruption compliance programs broadly enough to cover commercial bribery as well as bribery of government officials.
More information about the Esquenazi decision is available in Covington’s e-alert on the subject.