An appellate court decision upholding the federal government’s broad interpretation of which foreign government entities are covered by the United States’ anti-bribery law could make it easier for law enforcement authorities to charge U.S. businesses with violating that law, an effort that has yielded hundreds of millions of dollars in fines in recent years.
The Foreign Corrupt Practices Act prohibits U.S. individuals and companies from bribing any foreign official for the purpose of obtaining or retaining business. A foreign official is any officer or employee of a foreign government or any department, agency or instrumentality thereof. This case was brought by two individuals challenging their convictions for bribing officials of a Haitian telecommunications company on the grounds that it cannot be considered a government instrumentality.
Recognizing the need of both governments and businesses for clarity on this issue, the U.S. Court of Appeals for the Eleventh Circuit’s decision defined instrumentality for FCPA purposes as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The court said that what constitutes control and what constitutes a function the government treats as its own are “fact-bound questions” and that “it would be unwise and likely impossible to exhaustively answer them in the abstract.”
Nevertheless, the court listed the following as some factors that may be relevant to deciding if a government controls an entity: (1) the foreign government’s formal designation of the entity, (2) whether the government has a majority interest in the entity, (3) the government’s ability to hire and fire the entity’s principals, (4) 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 (5) the length of time these indicia have existed. The court added that in deciding if an entity performs a function the government treats as its own, courts and juries should examine whether (1) the entity has a monopoly over the function it exists to carry out, (2) the government subsidizes the costs associated with the entity providing services, (3) the entity provides services to the public at large in the foreign country, and (4) the public and the government of that foreign country generally perceive the entity to be performing a governmental function. The court said these factors are informed by the commentary to an international anti-bribery treaty the U.S. ratified and consistent with the Supreme Court’s reasoning involving these issues.
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