Cartels, TCOs, ‘Instrumentalities of a Government’: Reassessing FCPA Risk Amid Shifting US Enforcement Priorities

Whether cartels do or do not qualify as “instrumentalities of a government” under current FCPA law or based on the AG’s forthcoming revised FCPA guidance, their entanglement with corrupt officials and influence over local economies present real and evolving legal risks for companies operating in Latin America. The US administration’s focus on cartels and transnational criminal organizations underscores the importance of integrated compliance frameworks that are proactive, localized, and constantly evolving.

The Foreign Corrupt Practices Act (FCPA) prohibits, in part, a wide swath of companies and individuals from bribing foreign officials to obtain or retain business or gain some business advantage. On February 10, 2025, President Donald Trump issued an executive order temporarily halting the initiation of new FCPA investigations and enforcement actions and directing Attorney General (AG) Pam Bondi to both review existing policies and guidelines governing the US Department of Justice’s (DOJ’s) current approach to FCPA enforcement and issue updated policies or guidelines within six months.

Only days prior to the president’s order, AG Bondi had issued her own memorandum to the DOJ’s FCPA Unit, directing those prosecutors to prioritize the investigation of foreign bribery offenses that facilitate the criminal operations of drug cartels and transnational criminal organizations (TCOs) and “shift focus away from cases that do not involve such a connection.”

While it is yet to be seen what new policies or guidance ultimately will emanate from the DOJ at the conclusion of the six-month period, the AG’s directive regarding cartels and TCOs provides a window into at least one probable area of prioritization. In light of this strong signaling, it is vital for global businesses and their compliance teams to understand and be prepared for what this change of course could mean. This includes considering how (and whether) the FCPA could be brought to bear, what other laws might be applicable to corporations operating in relevant jurisdictions, and refreshing risk assessments in light of this potential shift in the federal enforcement agenda.

DEFINING ‘INSTRUMENTALITY OF A FOREIGN GOVERNMENT’

A central question in FCPA enforcement is what constitutes a “foreign official.” Under the statute, a “foreign official” includes officers and employees of entities considered “instrumentalities” of a foreign government. Courts and enforcement agencies have interpreted “instrumentality” broadly, encompassing state-owned enterprises as well as entities where the government is not the sole owner or operator but is deemed to have sufficient control.

But there is no bright-line rule to determine whether an entity is considered an instrumentality of a foreign government under the FCPA. In making this determination, courts have rejected an approach that is based entirely on the level of ownership by the government of the entity. Instead, courts consider the level of government ownership of the entity as one among several other factors. As such, FCPA enforcement actions have not been limited to only cases involving entities that are majority-owned by foreign governments.

The seminal case of United States v. Esquenazi provides the definition of “instrumentality.” In Esquenazi, the Eleventh Circuit adopted a two-part test, holding that an entity is an instrumentality of a foreign government if it (1) is controlled by the government of a foreign country and (2) performs a function the controlling government treats as its own. [1]

The court identified several nonexhaustive factors relevant to determining whether an entity is controlled by a foreign government, including:

• The government’s formal designation of the entity
• Whether the government has a majority ownership interest in the entity
• The government’s ability to hire and fire the principals
• Whether the government reaps the profits or subsidizes the losses of the entity [2]

Factors that weigh on whether the entity is “performing a function the government treats as its own” include:

• Whether the entity has a monopoly over the functions it carries out
• Whether the government subsidizes the entity
• Whether the entity provides services to the public at large
• Whether the public and government generally perceive the entity to be performing a governmental function [3]

CAN CARTELS AND TCOS QUALIFY AS GOVERNMENT INSTRUMENTALITIES?

In regions where state authority is weak or compromised, cartels and TCOs may effectively operate as de facto authorities that provide security, resolve disputes, impose taxes, and control local economies. In some instances, cartel influence may be so pervasive that the line between government and organized crime becomes blurred. In these circumstances, cartels and TCOs “perform a function the government treats as its own,” which aligns these organizations as government instrumentalities as laid out in Esquenazi. [4] However, cartels and TCOs are not typically controlled by a government. No US court has yet extended the definition of instrumentality of a foreign government to include a cartel or TCO. [5]

Importantly, the FCPA is designed to deter bribery of government officials; as such, making payments to cartel leaders or intermediaries, however coercive, is generally not an FCPA violation unless the cartel is functioning as an agent of the state or the payment is routed through public officials. Other laws—such as anti-money laundering (AML) statutes, the Kingpin Act, or the Foreign Narcotics Kingpin Designation Act—have traditionally been used to address criminal liability for transactions with cartels and TCOs.

ADMINISTRATION FOCUS ON CARTELS AND TCOS

The updated FCPA policies and guidelines that the president directed the AG to issue may be key to determining whether cartels and TCOs will be considered government instrumentalities. The court in Esquenazi alluded to DOJ FCPA Opinions as a viable mechanism for clarifying the FCPA. [6]

Specifically, in discussing the factors relevant to determining whether an entity is an instrumentality under the FCPA, the court noted that “[b]oth courts and businesses subject to the FCPA have readily at hand the tools to conduct that inquiry (especially because the statute contains a mechanism by which the Attorney General will render advisory opinions on request about what foreign entities constitute instrumentalities).” [7]

BUSINESS IMPLICATIONS AND COMPLIANCE RISKS

Companies operating in Latin America face exposure when navigating environments influenced by organized crime. Whether cartels and TCOs are considered “instrumentalities” under the FCPA or not, business dealings that involve extortion, facilitation payments, or indirect connections to criminal groups pose serious risks.

If a payment is made to a public official at the direction of or under pressure from a cartel, FCPA liability may still attach. This can include such things as protection payments or donations. For example, cartels have infiltrated governmental bodies, particularly at the municipal and local levels. Cartels also often control vast amounts of land in Latin American countries, which are often needed for private and public projects. The intersection of these two elements is breeding grounds for situations that run afoul of the FCPA.

Payments to cartel-linked entities can also trigger violations of AML regulations or sanctions laws, especially if the recipient appears on OFAC’s Specially Designated Nationals list. Importantly, the administration has recently designated certain cartels and TCOs as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). Persons that are determined to have engaged knowingly in transactions with designated terrorist organizations or SDGTs can face criminal charges for providing material support and resources to foreign terrorist organizations.

For example, in 2022 the France-based multinational cement company Lafarge S.A. and its subsidiary in Syria pled guilty to conspiracy to provide material support to FTOs for making payments to ISIS in order to operate a cement plant in Syria. Specifically, Lafarge and its subsidiary paid ISIS millions in order to protect their employees, ensure the continued operation of their cement plant in Northern Syria, and obtain advantages over their competitors in the market. As part of its resolution with the DOJ, Lafarge paid approximately $778 million in fines and forfeiture.

BEST PRACTICES FOR COMPANIES

To mitigate risk, companies should conduct enhanced due diligence, especially with respect to third parties. For example, companies that enter into government contracts are often required under the contract to hire local subcontractors. Companies operating in areas known for cartel influence are particularly at risk of hiring local cartel-related third parties to fulfill their contract requirements. If companies do not go beyond routine due diligence in assessing third parties, they may face unexpected risk. For this reason, as part of their third party due diligence, companies should at the very least assess a third party’s beneficial ownership, political exposure, and criminal affiliations.

Given the associated risks, companies should also establish internal escalation and reporting mechanisms for extortion or threats of violence, including legal, security, and compliance inputs. Employees and third-party agents must be trained to recognize and report red flags, including subtle coercion or demands for protection money.

STAY INFORMED

Visit our US Administration Policies and Priorities resource center and subscribe to our mailing list for the latest on programming, guidance, and current legal and business developments involving the Trump-Vance administration.