Toward Greater Guidance: Reforming the Definitions of the Foreign Corrupt Practices Act
Muma, Matthew W., Michigan Law Review
The Foreign Corrupt Practices Act of 1977 is the cornerstone of the United States' efforts to combat the involvement of U.S. companies and individuals in corruption abroad. Enforced by both the Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ"), the Act targets companies and individuals that pay bribes to "foreign officials," a nebulous category of persons that includes everyone from foreign cabinet members to janitors at companies only partially owned by a foreign state. After only sporadic enforcement in the early years of the Act's existence, the SEC and DOJ now bring many cases annually. This increased enforcement has raised the ire of the business community, and many commentators have criticized the government for haphazard enforcement and unclear guidance. The definition of "foreign official," which has always been deliberately broad and vague, has particularly vexed many companies. This Note proposes a creative amendment to the Act to solve this problem, not by changing the definition of "foreign official" but by requiring in-country State Department employees to provide country-specific guidance on who is-and who is not-a bona fide "foreign official" in a given place.
Between 2001 and 2004, Joel Esquenazi and Carlos Rodriguez paid kick- backs to two employees of the Haitian Telecommunications Company, Tele- communications d'Haiti S.A.M. ("Haiti Teleco").1 Esquenazi and Rodriguez's Miami-based telecommunications company, Terra Telecommu- nications Corp., had just consummated a joint-venture agreement with Ha- iti Teleco.2 The duo apparently paid kickbacks to the Haiti Teleco employees to maintain the relationship and ensure favorable rates.3 The Department of Justice ("DOJ") later brought suit against both individuals, alleging that they violated the Foreign Corrupt Practices Act of 1977 ("FCPA"), the chief U.S. law that prohibits U.S. companies, and companies that do business in the U.S., from bribing foreign governmental officials.4 The DOJ alleged that Ha- iti Teleco-while perhaps not a traditional component of a national govern- ment, like a ministry of foreign affairs or a telecommunications regulatory body-counted as an instrumentality under the "control[ ]" of the Haitian government for the purposes of the FCPA.5 The defendants did not deny committing the underlying acts but instead argued that the FCPA was inap- plicable because employees of Haiti Teleco are not "foreign officials" and the company itself is not a "foreign instrumentality" for purposes of the law.6
The Esquenazi case is a good example of both the FCPA's reach and the ambiguities and uncertainties underlying that reach. While it is clear from the facts of the case that the defendants engaged in unethical business prac- tices, it is not clear whether they knew or should have known they were bribing a foreign official. Haiti Teleco was an important company in Haiti, but its ownership structure was ambiguous; at the time, it was not obviously or wholly owned by or under the control of the government.7 In their briefs, both defendants claimed, in fact, that the company was not so owned and that even if it was majority owned by the Haitian government, the company was never really in the control of the government or directly used to further its goals.8 The Esquenazi case is therefore emblematic of several problems that have haunted FCPA enforcement in the last decade.
Congress passed the FCPA in 1977, after Watergate and revelations of corrupt payouts to foreign officials by employees of several American com- panies, including Northrop Grumman and Exxon Mobil.9 The FCPA criminalizes two distinct practices: first, it makes it illegal for a U.S. com- pany or its agent to bribe a "foreign official" who works for an "agency[ ] or instrumentality" of a foreign state for the purpose of "securing any im- proper advantage";10 second, it requires companies that are publicly traded in the United States, and thus registered with the Securities and Exchange Commission ("SEC"), to keep accurate accounting records. …