U.S. v. Esquenazi: Some Knee-Jerk Reactions

As those who follow the world of Foreign Corrupt Practices Act (FCPA) enforcement are no doubt well aware, earlier this week the U.S. Court of Appeals for the 11th Circuit decided U.S. v. Esquenazi. The decision affirmed the convictions of two individuals involved in a complicated scheme to bribe officials of Teleco, the Hatian state-owned telecommunications company. Though the appeal involved several issues, the most significant aspect of the case–and the reason it had been so closely followed by so many people–was the defendants’ claim that Teleco was not an “instrumentality” of the Hatian government, and therefore that the Teleco employees whom the defendants bribed were not “foreign officials” within the meaning of the FCPA. Though several district courts had considered (and rejected) claims of this sort before, Esquenazi was the first court of appeals decision to address such a claim.  And, like all of the prior district court cases, the court rejected the defendant’s argument and found that Teleco was indeed an instrumentality of the Hatian government.

Though I’m not sure there’s all that much to say about this that hasn’t already been said, let me make four quick observations about the decision and its potential significance (or lack thereof):

  • First, although there has been a great deal of carping in some quarters about the breadth and/or ambiguity of the DOJ’s interpretation of the FCPA term “instrumentality” (and, derivatively, “foreign official”), the Esquenazi court’s opinion is eminently sensible. The court, like the DOJ, recognizes that it’s difficult to come up with a simple, universally-applicable rule for determining which entities are “instrumentalities” of a foreign government; the court instead emphasizes the need to look to two factors: (1) whether the foreign government “controls” the entity; and (2) whether the entity performs a function that the foreign government “treats as its own”. The former inquiry turns on a range of factors (not just the size of the government’s stake in the company, though that is relevant); the latter inquiry is context-specific, depending on both objective criteria (such as whether the entity has a monopoly on providing the good or service in question) and subjective criteria (whether the entity performs a function that the society in question perceives as a governmental function). One can always quibble about the particular factors that go into these two determinations, and their respective weights, but at the big-picture level, it’s hard for me to imagine any other sensible way to make this determination.
  • Second, following closely on the previous point, it’s worth emphasizing that although the defense bar, the Chamber of Commerce, and some academic critics keep harping on the need to “clarify” the FCPA’s definition of “foreign official”/”instrumentality”, it seems to me that when they say “clarify” they usually mean “narrow” or “restrict”.  After all, the request for clarification is almost invariably framed as a request that the court adopt some sort of per se rule that state-owned firms are not instrumentalities of a foreign government (or that they cannot be so considered if the government ownership stake is below 50%, or something similar).  But if all we cared about was clarity, we could have a rule that said (clearly) that all SOEs are “instrumentalities” for FCPA purposes–a possibility that the Esquenazi court expressly disavows (as does the DOJ, for that matter). To those who emphasize the importance of clarity qua clarity, I think it’s fair to ask whether they would prefer a more expansive bright-line rule of the sort just described. I’m going to guess that the answer will be no. So we should view the claim that the FCPA requires “clarification” with some skepticism.
  • Third, perhaps the most interesting aspect of the opinion’s legal analysis–which most of the early commentary has overlooked–is the Esquenazi court’s invocation of the OECD Anti-Bribery Convention. In brief (and simplifying somewhat), the court reasoned as follows: (1) In 1998, Congress amended the FCPA to bring it into compliance with U.S. obligations under the OECD Convention; (2) although these amendments made some changes, they left most of the statute intact–the U.S. neither submitted reservations to the Convention, nor did Congress in enacting the 1998 amendments refer to any remaining gap between the FCPA and obligations under the Convention; (3) therefore, courts can and should assume that, where there is any ambiguity in the FCPA, the statute can and should be interpreted so that it is consistent with the OECD Convention (a result that, the court notes, is also dictated by conventional canons of statutory interpretation in U.S. law, according to which domestic statutes should be construed, where possible, to avoid conflicts with international legal obligations); and (4) the best reading of the OECD Convention is that foreign anti-bribery laws should apply to bribes received by employees of any entity controlled by the government, which the government treats as performing a government function. That interpretive approach is plausible, indeed sensible, but certainly not indisputable or uncontroversial. And if accepted more broadly, this methodology could have significant effects on FCPA interpretation (effects which would probably be good on net, but which are worth considering more explicitly).
  • Finally, I think it’s worth noting that the DOJ dodged a bullet here. As I’ve already said, I think the DOJ’s position, basically accepted by the 11th Circuit, was the correct one. And on this particular issue–the meaning of “foreign official”–the DOJ is basically undefeated. But federal judges are notoriously unpredictable, and they have been known to issue what some of us would consider absurd (or at the very least problematic) decisions. If this case had gone the other way–if the court had, say, ruled that an SOE that was not formally part of the government was not a government instrumentality–this would have had effects far beyond this particular case, substantially impeding the DOJ’s approach to FCPA enforcment. Very few FCPA cases go to trial, so we rarely have judicial rulings on the statute’s meaning. Some say this is bad; I’m not so sure it is. But either way, it means that every judicial decision is consequential, and every time the DOJ takes a case to trial, it’s taking a huge risk. This time DOJ escaped unscathed, but who knows what will happen next time.

3 thoughts on “U.S. v. Esquenazi: Some Knee-Jerk Reactions

  1. Your quick respense to the new 11the Circuit rulling is really inspiring and in-depth, which reminds me of more implications beyond the legal implication itself, including the reflections of the rulling to Chamber of Commerce, scholars and subtle relationship between DOJ and judicial side. Firstly, as the first circuit level decision, this is really a stop sign for any further claim of some per se rules strongly advocated by Chamber of Commerce, business and some scholars’ side. After all, a per se rule saying a SOE either is or not a governmental “instrumentality” itself, although good as a simple test, could never satisify the dynamic changes of the real world. Secondly, with regard to the compliance with OECD convention, the court is really thinking of some authority for their justified adoption of the two-pronged test and they do find a good reason for doing so, namely, compliance with an international convention, OECD anti-bribery convention. But a mere farfetched policy reason and an assumption inferred from a one-sided amendment will definitely leave room for future debates. Thirdly, although the court sitting in this case never mentioned the Resource Guide to FCPA released by DOJ and SEC collectively in 2012, but actually its two-pronged test in essence has not quite deviated from the Resource Guide’s four-pronged test, i.e, control, ownership, function and status as both ownership and status serve as an inner test for function and status. Therefore in a foreseeable future, this decision is significant as to both DOJ and SEC when they administered FCPA cases.

  2. The December 2014 OECD analysis of cases brought by parties to its anti-bribery convention finds that those most commonly bribed were officials at state-owned enterprises (p.22).

    A different result in Esquenazi might well have opened a large hole in the U.S. enforcement scheme.

  3. Pingback: United States v. Esquenazi - United States v. Esquenazi

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