U.S. Appeals Court Clarifies Definition of “Foreign Official” Under the FCPA

June 6, 2014

In a closely-watched decision, United States v. Joel Esquenazi, the U.S. Court of Appeals for the 11th Circuit recently confirmed that employees of a state-owned enterprise (in this case, a telecommunications company) are employees of a state “instrumentality” for purposes of the U.S. Foreign Corrupt Practices Act. As employees of an “instrumentality,” they are considered “foreign officials” for FCPA purposes and bribes paid to them may violate the FCPA. The ruling, which is the first significant appellate decision to define the term “instrumentality” under the FCPA, largely affirms the government’s longstanding position that employees of state-owned companies may be considered “foreign officials.” The decision provides a two-step analysis to determine whether an entity is a “foreign instrumentality”; not only must the company in question be controlled by the state, but it also must perform a government function. The decision provides some guidance as to both of these issues, but unsurprisingly leaves much to a case-by-case (and country-specific) factual analysis of the relationship between the government and the state-linked entity, and leaves open more difficult questions such as the extent to which state-controlled companies operating in sectors more typically viewed as commercial will be classified as “instrumentalities.”