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On May 9, 2014 the 11th Circuit became the first federal appellate court to define "instrumentality" under the Foreign Corrupt Practices Act ("FCPA"). 

 

The FCPA prohibits “any domestic concern” from “mak[ing] use of the mails or any means . . . of interstate commerce corruptly in furtherance of” a bribe to “any foreign official,” or to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official,” for the purpose of “influencing any act or decision of such foreign official . . . in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person.” 15 U.S.C. §§ 78dd-2(a)(1), (3).  A “foreign official” is “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” Id. §78dd-2(h)(2)(A).

 

The central question before the Court, which has become extremely important with increased U.S. investment in India, certain European countries, and China (and other places where governments have significant interest in normally"private" enterprises), was what “instrumentality” meant.  Following a lengthy analysis of legal and conventional dictionary definitions, augmented by prior case law and regulatory commentary -- particularly "the commentary to the OECD [Anti-Bribery] Convention the U.S. ratified” -- the Court determined that under the FCPA an ""instrumentality" ... is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”   While acknowledging that "control" and what a government "treats as its own” were fact-specific questions, the 11th Circuit offered some salient factors to consider: the foreign government’s formal designation of the entity, whether the government has a majority interest in the entity, the government’s ability to hire and fire its principals, and how the government handles profits and losses at the entity.

 

While the Court's definition was widely anticipated, it is likely this "statement" will be part of an on-going legal dialectic: the federal government has systematically expanded the scope of the FCPA over many years; now the appellate courts are providing their input.  As FCPA-related prosecutions rapidly rose over the past several years -- and appeals related to those rulings are now being considered -- the courts will have many opportunities to map the contours of this legal terrain.

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