US Appeals Court defines ‘instrumentality’ under FCPA

In what may be the first interpretation of term ‘instrumentality’ under Foreign Corrupt Practices Act, United States Court of Appeals for Eleventh circuit ruled that an ‘instrumentality’ is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.

“An “instrumentality” under section 78dd-2(h)(2)(A) of the FCPA is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes ‘control’ and what constitutes a ‘function’ the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract”, the Court said after reviewing other US statutes and international conventions ratified by US government.

The Court said to decide if the government ‘controls’ an entity, courts and juries should look to the: –

– foreign government’s formal designation of that entity;

– whether the government has a majority interest in the entity;

– the government’s ability to hire and fire the entity’s principals;

– the extent to which the entity’s profits, if any, go directly into the governmental fisc, and by the same token, the extent to which the government funds the entity if it fails to break even; and

– the length of time these indicia have existed.

Similarly, the Court said to decide if the entity performs a ‘function’ the government treats as its own, courts and juries should examine: –

– whether the entity has a monopoly over the function it exists to carry out;

– whether the government subsidizes the costs associated with the entity providing services;

– whether the entity provides services to the public at large in the foreign country; and

– whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.

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