Private equity firms befuddled as to who counts as a foreign official under US anti-bribery rules should be aware of a recent court case challenging the law’s definition of the term.
Currently the FCPA defines a “foreign official” as an officer or employee of a foreign government or any of its “departments” “agencies”, or “instrumentalities”.
The case challenges the broad scope of the definition of instrumentalities, which has not been clearly defined by the Act but is seen by the US government as a state-owned entity. However, this definition is not always clear cut, argues the law's critics.
The court case, now on appeal, was launched by former Terra Telecommunications executives, Joel Esquenazi and Carlos Rodriguez, after they were convicted under the FCPA of scheming to bribe officials of Haiti’s state-owned telecom company – which was deemed an “instrumentality”.
The appeal centres on the Haitian government owning shares in a company which does not perform a government function – the definition given to “instrumentalities” by a district court ruling. Defendants argue that “Congress intended the definition of ‘foreign official’ to apply to traditional government officials, not employees of state-owned enterprises.”
At risk for private equity firms and their portfolio companies is the fact that they often engage in a variety of businesses around the world which may directly or indirectly interact with a government or its “instrumentalities”.
Any dealings with sovereign wealth funds would be seen as engagement with “foreign officials” under the Act, said in an interview with PE Manager one US-based lawyer, who added it is very important for firms to make sure they have a robust compliance programme.
It is also important to consider that when portfolio companies enter into third-party relationships with distributors, vendors and so on the US government takes the position that the portfolio company is liable for the actions of the third-party when they interact with foreign government officials, the lawyer advised.