The U.S. government has in recent years exhibited an increasingly aggressive approach in prosecuting individuals for alleged violations of the Foreign Corrupt Practices Act, (“FCPA”).  The FCPA prohibits, inter alia,  any domestic individual or business entity from making payments to a “foreign official” for the purpose of obtaining or retaining business 15 U.S.C. § 78dd-2(a)(1). Prosecutors have pushed an expansive view of who is a foreign official in recent years, in pursuing many cases where bribes were paid to officials at state-owned companies.      

Under the FCPA, a “foreign official” is defined as: “[A]ny 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.” U.S.C. § 78dd-2(h)(2)(A).       

The term “instrumentality” is, however, not defined in the FCPA, leading to many difficulties for foreign businesses and to uncertainty.  For example whether an employee of a state-owned company is a foreign official depends, in part, upon whether state-owned companies are considered to be “instrumentalities” of a foreign government.   

Recent U.S. district court cases have held that state-owned or state-controlled entities may qualify as government instrumentalities, and hence employees and officers of such entities may be “foreign officials” within the meaning of the FCPA.  Thus the determination is a fact-specific inquiry. For example in United States v. Carson, (C.D. Cal. May 18, 2011), the court identified several relevant factors to be weighed in the enquiry, including (a) the foreign state’s characterization of the entity and its employees; (b) the foreign state’s degree of control over the entity; (c) the purpose of the entity’s activities; (d) the entity’s obligations and privileges under the foreign state’s law; (e) the circumstances surrounding the entity’s creation; and (f) the extent of the foreign state’s ownership of the entity and level of financial support provided to it. The court emphasized that state ownership by itself is insufficient to determine that the company is an “instrumentality” under the FCPA.. In United States v. Aguilar, 783 F. Supp. 2d 1108 (C.D. Cal. 2011), in addition to several of the factors identified by the Carson court, the Aguilar court also looked at whether the entity provides a service to the citizens of the jurisdiction; whether key officers and directors are, or are appointed by, government officials; and whether the entity is perceived and understood to be performing official government functions. Such an interpretaion would appear to be more in line with the definition of a public enterprise set out in the OECD Anti-Bribery Convention.   

On September 18, 2012, the U.S. Department of Justice (“USDOJ”) issued Opinion Release 12-01, which addresses the question of who is a “foreign official” under the FCPA.  The Opinion Release was issued following the request for such by a U.S. Lobbying Firm that planned to hire a consulting firm to advise it, inter alia, as to how best to obtain a contract to represent a foreign country’s embassy in its U.S. lobbying activities. One of the Consulting firm’s partners is a member of the foreign country’s royal family and the lobbying firm sought guidance on whether this royal family member constituted a “foreign official” for the purposes of the FCPA.     

The USDOJ stated that the Royal Family Member does not constitute a foreign official under the FCPA “so long as [he] does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.”  The USDOJ considers that the analysis requires a “fact-intensive, case-by-case determination” based on a variety of factors, including:     

The structure and distribution of power within the foreign country’s government;    

The royal family’s current and historical legal status and powers;    

The individual’s position within the royal family;    

The individual’s present and past positions within the government;    

The mechanisms by which the individual could come to hold a position with governmental authority or responsibilities (e.g., royal succession);    

The likelihood that the individual would come to hold such a position; and    

The individual’s ability, directly or indirectly, to affect governmental decision-making.     

In examining the characteristics of a “foreign official,” the USDOJ also cited factors such as those applied in United States v. Carson, in addressing whether a state-owned entity may be an “instrumentality” of a foreign government, they include:       

The foreign state’s characterization of the entity and its employees;    

The foreign state’s degree of control over the entity;    

The purpose of the entity’s activities;    

The entity’s obligations and privileges under the foreign state’s law;    

The circumstances surrounding the entity’s creation; and    

The foreign state’s extent of ownership of the entity, including the level of financial support provided by the state.    

This Opinion Release however focuses again on a fact specifc, case by case enquiry and gives no real clear guidance as to what is or is not an instrumentality in legal terms.     

The uncertainty surrounding the definition however may be about to change.  The question of what constutes an instrumentality is now before an apeallate court for the first time.  Two former executives of Terra Telecommunications who were convicted in August 2011 of bribing officials at Haiti Teleco, a state-owned telecom company in Haiti, raised the question in briefs filed with the U.S. Court of Appeals for the Eleventh Circuit earlier this year.  The USDOJ has defended its definition of “foreign official” in a brief filed with the U.S. Court of Appeals for the 11th Circuit.    

The reluctance to more clearly define or provide guidance on the term foreign officials and instrumentality has worked to the USDOJ’s favour, enabling agressive pursuit of a wide variety of targets that would likely not be caught under equivalent legislation in other jurisdictions. The OECD Anti-Bribery Convention (to which the United States is a party) defines a foreign public official as  “any person holding a legislative, administrative or judicial office of a foreign country, whether appointed or elected; any person exercising a public function for a foreign country, including for a public agency or public enterprise; and any official or agent of a public international organisation. ”   

"Public function" is defined as including any "activity in the public interest, delegated by a foreign country, such as the performance of a task delegated by it in connection with public procurement. ”   

A "public agency" is defined as an entity constituted under public law to carry out specific tasks in the public interest.   

A "public enterprise" is defined as any "enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence. This is deemed to be the case, inter alia, when the government or governments hold the majority of the enterprise's subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise's administrative or managerial body or supervisory board."   

The UK Bribery Act uses the term Foreign Public Official (FPO). In line with the OECD Convention an FPO is an individual who holds a legislative, administrative or judicial position of any kind (whether appointed or elected) in a country or territory outside the UK, or who exercises a public function for and on behalf of a territory outside the UK, or for any public agency or enterprise of that country or territory, or is an official agent of a public international organisation.  Thus under the UK legislation and the OECD Convention the term public is emphasised.  It is the omission of the word public and the term public function in the FCPA that arguably has allowed the USDOJ to espouse such a broad interpretation and that has lead to such uncertainty.    

The view of the U.S. Court of Appeals for the 11th Circuit in U.S. v. Esquenazi and Rodriguez is awaited with interest.