Archive for the ‘Foreign Nationals’ Category

Into The FCPA’s Jurisdiction Thicket

Tuesday, April 28th, 2015

ThicketThe jurisdiction elements of the Foreign Corrupt Practices Act are like a thicket.

It is easy to get snarled and snagged (and thus confused) as to the law’s jurisdiction elements.

Hopefully this post can clear things up a bit.

Jurisdiction under the FCPA’s anti-bribery provisions depends on the type of business organization or person subject to the FCPA.

 

  • As to U.S. “issuers” and “domestic concerns,” the FCPA contains both territorial jurisdiction and nationality jurisdiction.  Territorial jurisdiction refers to “use of the mails or any means or instrumentality of interstate commerce” in furtherance of an improper payment.  Nationality jurisdiction, added to the FCPA in the 1998 amendments, means that an improper payment scheme is prohibited by the FCPA’s anti-bribery provisions “irrespective of whether [the U.S. person] makes use of the mails or any means or instrumentality of interstate commerce in furtherance” of an improper payment.  Thus, as to U.S. “issuers” and “domestic concerns,” the FCPA’s anti-bribery provisions have extraterritorial jurisdiction meaning that the FCPA can be violated even if an improper payment scheme is devised and executed entirely outside of the U.S.
  • As to foreign “issuers,” the FCPA’s anti-bribery provisions apply only to the extent there is territorial jurisdiction, in other words, “use of the mails or any means of instrumentality of interstate commerce” in furtherance of an improper payment scheme. (The alternative nationality jurisdiction prong added to 78dd-1 in 1998 only applies to U.S. issuers).
  • As to “persons” other than an “issuer” or “domestic concerns,” the FCPA’s anti-bribery provisions apply to the extent that, “while in the territory of the U.S.,” the person “makes use of the mails or any means or instrumentality of interstate commerce” or engages in “any other act in furtherance” of an improper payment scheme.

This recent post highlighted the judicial benchslapping the DOJ received in a foreign bribery case involving foreign nationals (U.S. v.  Vassilieve et al.). The prior post noted that the alleged conduct was in the same general sphere of the FCPA, but that DOJ’s indictment did not contain any U.S. jurisdictional allegations, and likely because of this, the bribery scheme was not charged as an FCPA offense.

An informed and astute reader correctly notes however that the FBI Agent Affidavit in Support of the Criminal Complaint specifically refers to “at least thirty … e-mail exchanges relevant to the bribery scheme … [that] passed through the Google server “mx.google.com” which is located in the Northern District of California.”  As stated in the affidavit, “accordingly, a significant number of e-mail communications that facilitated the commission of the crimes described herein traveled to and through the Northern District of California.”

Would such e-mail communications have provided the necessary jurisdictional hook for the DOJ to charge the foreign national defendants with FCPA anti-bribery violations?

Informed readers no doubt recall SEC v. Straub (see here for the prior post), a case of first impression concerning the jurisdictional parameters of 78dd-1 as it relates to foreign national defendants.  In Straub, a decision by the S.D. of N.Y. on a motion to dismiss (the case is still pending), the SEC alleged that the foreign national defendants were subject to the FCPA’s anti-bribery provisions because e-mails in furtherance of the bribery scheme – while sent from locations outside of the U.S. – were  routed through and/or stored on network services located within the U.S.

Judge Sullivan found the jurisdictional element of 78dd-1 (use of the “mails or any means or instrumentality of interstate commerce”) to be ambiguous and he thus consulted legislative history.  In reviewing the legislative history, Judge Sullivan concluded that the corrupt intent element of the FCPA did not apply to the jurisdictional component of the FCPA.  Accordingly, Judge Sullivan concluded that e-mails routed through and/or stored on network servers located within the U.S. are sufficient to plead the jurisdictional element of an FCPA anti-bribery violation even if the defendant did not personally know where his e-mails would be routed and/or stored.

The foreign national defendants in U.S. v. Vassilieve were not associated with an issuer (as in Straub).  Thus, to the extent the foreign national defendants could have been charged with FCPA anti-bribery violations, it would have been under the 78dd-3 prong of the FCPA.

As noted above however, the 78dd-3 prong of the FCPA has a more stringent jurisdictional element compared to the 78dd-1 prong relevant to foreign nationals.  The jurisdictional prong of 78dd-3 is as follows:  “while in the territory of the U.S.,” the person “makes use of the mails or any means or instrumentality of interstate commerce” or engages in “any other act in furtherance” of an improper payment scheme.

The only judicial scrutiny of this prong of the FCPA occurred in the Africa Sting case during which Judge Richard Leon (D.D.C.) dismissed substantive FCPA charges against Pankesh Patel (a U.K. national) that were premised on him sending a DHL package in furtherance of the alleged (and manufactured) bribery scheme from the U.K. to the U.S.

As highlighted in this June 2011 post, Judge Leon benchslapped the DOJ on this jurisdictional theory.

In short, the jurisdiction elements of the FCPA’s anti-bribery provisions are a thicket and subtle differences exist in 78dd-1 and 78dd-3 in regards to FCPA exposure of foreign national defendants.

The DOJ Gets Benchslapped In Foreign Bribery Case

Thursday, April 23rd, 2015

Charles B.In recent FCPA year in reviews (see here for 2014 and here for 2013) topics have included judicial scrutiny of non-FCPA cases because the decisions (mostly concerning jurisdictional issues relevant to foreign actors) should cause pause as to certain Foreign Corrupt Practices Act enforcement theories against foreign actors.

The 2015 year in review is sure to include mention of U.S. v. Vassilieve et al. (a recent case highlighted here) in which U.S. District Court Judge Charles Breyer (N.D. Cal.)(pictured) delivered a major benchslap to the DOJ.

The case involved conduct in the same general sphere of the Foreign Corrupt Practices Act.

Namely, the DOJ alleged in this indictment that:

Yuri Sidorenko (a citizen of Ukraine and St. Kitts & Nevis who resided in Dubai and the Chairman of the EDAPS Consortium Advisory Counsel – a Ukrainian conglomerate of various companies that manufactured and supplied a variety of identification and security products, including passports, drivers licenses and other such products) and

Alexander Vassiliev (also a citizen of Ukraine and St. Kitts & Nevis who resided in Dubai and the Chairman of the Board of EDAPS)

provided money and other things of value to Mauricio Siciliano (an executive of the International Civil Aviation Organization (“ICAO”),  a United Nations specialized agency, responsible for, among other things, standardizing machined-readable passports, including biometric passports) so that Siciliano would use his official position as an Executive of ICAO to benefit EDAPS’s business as well as Sidorenko and Vassiliev personally.  According to the indictment Siciliano (a Venezuelan national who primarily resided in Canada where ICAO is headquartered and had a Canadian passport) was an executive at ICAO who was specifically assigned to work in ICAO’s Machine Readable Travel Documents Programme.

Siciliano would likely be a “foreign official” under the FCPA given the “public international organization” prong of the “foreign official” element. However, as it relates to foreign nationals like Sidorenko and Vassiliev the FCPA’s anti-bribery provisions contain the following jurisdictional element:  ”while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance” of a bribery scheme.

The DOJ’s indictment did not contain any U.S. jurisdictional allegations, and likely because of this, the bribery scheme was not charged as an FCPA offense.

Rather, the indictment alleged that the U.S. was a member of ICAO and provided support to ICAO by, among other things, annual monetary contributions.  According to the indictment, during the relevant time period, U.S. contributions to ICAO constituted approximately 25% of its annual budget.

Presumably on the basis of this allegation, the DOJ charged the defendants with: (i) conspiracy to commit honest services fraud; (ii) honest services fraud; (iii) conspiracy to solicit and to give bribes involving a federal program; (iv) soliciting bribes involving a federal program; (v) giving bribes involving a federal program; and (vi) aiding and abetting offenses.

Vassiliev and Siciliano filed similar motions to dismiss (here and here) with Vassiliev’s motion to dismiss stating in pertinent part:

“This is a most unusual indictment. It levels charges against foreign nationals and is based solely on foreign conduct. The indictment candidly states that the alleged offenses were committed in their entirety outside the United States—they were “begun and committed outside the jurisdiction” of any State or district.

All three defendants are foreign citizens and foreign residents. [...] The indictment contains no allegation that any of them committed any criminal act in the United States. In fact, the indictment contains no allegation that any of them ever entered the United States for any reason whatsoever, let alone in connection with the crime charged in the indictment. The gist of the indictment is that Vassiliev and Sidorenko sought to pay bribes and/or gratuities to Siciliano, who worked for an agency of the United Nations based in Canada, in order to influence contracts awarded by other foreign agencies. [...]

These criminal counts are fundamentally flawed. Neither statute has extraterritorial application, so the indictment fails to state an offense under United States law. Even if the statutes were found to apply extraterritorially, the alleged facts in this case fail to allege minimum contacts or sufficient nexus between the defendants and the United States, so the Due Process Clause forbids this prosecution.”

Judge Breyer granted the motion to dismiss and his comments in this transcript make for an interesting read.

“What I’m going to do is read the facts as I have gleaned them from the indictment and I’d like the Government to — if  the Government believes that I’ve misstated it, I would like you to make note.

The International Civil Aviation Organization has been a United Nations specialized agency since 1944. The United States has been a member of this agency since its formation. One of the agency’s responsibilities is standardizing machine readable passports. The standards that this agency established were used to determine which features would be utilized in passports in a variety of countries, including the United States.

The time period relevant to the indictment is 2005, 2010. And during this time, the United States made annual monetary contributions to the agencies exceeding $10,000 per year. Throughout this time period contributions from the United States constituted 25 percent of the agency’s annual budget.

Mr. Siciliano was an employee of this agency and was specifically assigned to work in the Machine Readable Travel Documents Program. Mr. Siciliano worked and resided in Canada, where the agency that we’ve just discussed is headquartered. He held a Canadian passport, but is actually a Venezuelan national.

Mr. Sidorenko and Mr. Vassiliev were chairmen of a Ukrainian conglomerate of companies that manufactured and supplied security and identity products and their consortium, how they acted, was called EDAPS. It’s called the EDAPS Consortium.

Mr. Sidorenko is a citizen of Ukraine, Switzerland and St. Kitts and Nevis. Not of the United States. But he primarily resided in Dubai during the relevant time period.

Mr. Vassiliev also resided in Dubai, but he is a citizen of Ukraine and St. Kitts and Nevis. He’s not an American citizen either.

And, of course, the company is not — I mean, the agency is not an American agency.

The indictment alleges that Mr. Sidorenko and Mr. Vassiliev provided money and other things of value to Mr. Siciliano in exchange for Mr. Siciliano using his position at this agency to benefit EDAPS, as well as Sidorenko and Vassiliev personally. That is to say, the allegation is that the — that Mr. Sidorenko and Vassiliev, Ukrainians, provided things of value to Mr. Siciliano in Canada in exchange for Mr. Siciliano using his position at a place in Canada to benefit an Ukrainian company, as well as these — Mr. Sidorenko and Mr. Vassiliev personally, these Ukrainians personally.

Mr. Siciliano sought to benefit the Ukrainian consortium by introducing and publicizing EDAPS to Government officials and entities, by arranging EDAPS to appear at the agency’s conferences, and by endorsing the Ukrainian consortium to other organizations and contacts.

The indictment also alleges that Mr. Siciliano assisted Mr. Vassiliev’s girlfriend in obtaining a visa to travel to Canada in 2007.

Around the same time Mr. Siciliano also considered arranging to obtain a visa for Mr. Sidorenko by hiring Mr. Sidorenko as a consultant for this agency.

Additionally, the three defendants arranged to have Mr. Siciliano’s son sent to Ukraine to work for Mr. Sidorenko.

During there time period, Mr. Siciliano wrote an email message to Mr. Vassiliev seeking payment of dues via wire transfer to a Swiss bank account.

A few years later, Mr. Siciliano sent an email advising Mr. Vassiliev and Mr. Sidorenko that they owed him three months payment. A few weeks after this email, Mr. Siciliano sent another email to Mr. Vassiliev referencing future projects, receiving the fruits of their marketing agreement, and inquiring about picking up his dues.

All of those activities, everything that I have said, occurred outside the United States of America between these three defendants, who, by the way, aren’t United States citizens, who never worked in the United States and whose use of the wires did not reach or pass through the United States.

[...]

[M]y first reaction in reading this indictment is that your office is to be congratulated because, apparently, you have reduced crime in the Northern District of California, and indeed in the United States of America, to such a point that you are using resources of your office to go after criminal activity that occurs in foreign countries and for that — that’s a rather interesting concept that, apparently, you thought this is a good use of assets and resources of the United States Attorney’s Office for the Northern District of California.

So it occurred to me: Is this statute or statutes, the honest services statute and the bribery statute, extraterritorial? And, fortunately, the Supreme Court has addressed this issue. As recently as 2010, they have said — Justice Scalia writing the opinion for a unanimous court, I might add, said that you just look at the statute. See what Congress said. Did Congress say it should be applied extraterritorial?

And you would concede, wouldn’t you, [DOJ attorney], there is nothing in the statute that talks about extraterritorial application, is there?

DOJ: There is nothing in the text of [the charged statutes]. I would submit that the legislative history of [a relevant statute] suggests that it was meant to be applied extraterritorially.

THE COURT: But you know there are those people, like judges, who look first to the statute. There is nothing in the statute.

DOJ: That is correct, your Honor.

THE COURT: Okay. So then if there is nothing in the statute, that doesn’t preclude necessarily the application of the statute extraterritorial, but we have to see whether or not that’s consistent with the general purpose of the statute.

DOJ: Correct, your Honor.

THE COURT: And it’s your view that since the Government contributes some funds to this agency, which is involved in national security — I guess we can talk about it in open court, can’t we?

DOJ: Yes, your Honor.

THE COURT: Okay. I didn’t want to clear the Court because of this strong national security interests that apparently are at issue here. But because they give money to this agency which is engaged in activities, some of which may impact national and international security arrangements, that’s the nexus for the United States Government to apply the statute in an extraterritorial way, is that correct?

DOJ: That’s certainly one of the key –

THE COURT: That’s your first point. We’ll get to the other points, but let’s deal with this first point first.

And so it occurred to me by that logic, the United States being a very generous country, gives a lot of money to a lot of foreign countries. They give over a billion dollars to Egypt. They give vast sums of money to Mexico. They give sums of money to many, many countries all over the world.

And then I wonder by their giving some money to a foreign country, does that then give them jurisdiction to apply statutes, such as the honest services statute, to individuals who are operating in that country or outside the United States?

For example, can you prosecute — you give some money, let’s say, to Mexico and — for programs involving security in Mexico, the border. Let’s make it right down your alley. And it turns out that somebody who is running one aspect of that program in Mexico, a Mexican national, favors his brother-in-law and takes a bribe from his brother-in-law to get his brother-in-law’s children a job somewhere.

Are you suggesting that the United States of America under an honest services theory could prosecute the individual in Mexico?

DOJ: Under honest services, there would have to be the use of a mailing or wire. Under [a relevant statute] I believe those facts would support a prosecution, if the funding were made pursuant to a federal program.

THE COURT: So, in other words, if I — it’s your view, your view, that the United States of America can police foreign companies in the exercise of their operation involving foreign citizens on matters unrelated to the program which the United States gave money for — that is, for the specific purpose of the program — and that they then have jurisdiction to act in that regard.

DOJ: It is, your Honor, if it is pursuant to a federal program.

THE COURT: And do you have one case that says that?

DOJ: We have Campbell, your Honor, which was a District of Columbia case in which an Australian national was charged with bribery under 666 for conduct in Afghanistan relating to his work with a private contractor that received aid from the US AID.

THE COURT: And the program involved was a program for the benefit of the United States, is that correct, in that case?

DOJ: It was a program through which the United States policy interests were advanced, your Honor.

THE COURT: So if there is ever, ever a policy interest of the United States of America in anything a foreign country — that occurs in a foreign country, the United States Attorney’s Office for the Northern District of California will vindicate the way the laws apply — the honest services law applies. You’re going to wipe out bribery and honest services throughout the world. I want to congratulate you for that.

And I never in my life, in 50 years of criminal practice, seen a more misguided prosecution as the one that you’ve brought. I just don’t even get it. I don’t get it, how you can — how you can use resources of the United States Attorney’s Office to prosecute some foreign nationals involved in a foreign company, engaged in conduct which was foreign, on doing things that weren’t directly related to the contribution of the United States to that entity.

DOJ: Your Honor –

THE COURT: Who did you get permission from to bring this prosecution? Anybody in Washington?

DOJ: We — this was a Northern District of California prosecution, your Honor.

THE COURT: Did you get permission from anyone in the Department of Justice in Washington DC to bring this prosecution?

DOJ: It was not required. We coordinated –

THE COURT: It implicates foreign countries, doesn’t it?

DOJ: It does, your Honor.

THE COURT: And you didn’t choose fit to ask the Department of Justice whether in their smarter sentencing, smarter criminal law enforcement program this is a good use of your resources?

DOJ: We received office approval. We also coordinated with the State Department, your Honor.

THE COURT: Pardon?

DOJ: We also coordinated with the State Department.

THE COURT: In other words, it was the State Department, and that was whether or not this person had diplomatic immunity. I’m not even going to address that. That’s another issue entirely.

But you’re telling me this was a decision of the United States Attorney to bring this prosecution without the knowledge of the Department of Justice.

DOJ: It was a duly authorized decision by this office to do so.

THE COURT: My suggestion, since I’m dismissing this indictment, is that you bring an appeal, right away. I would be very interested in what the Ninth Circuit has to say about this, whether they think that there is enough of a nexus to apply statutes, such as the bribery statute and the honest services statute, to the conduct that’s alleged in this particular case.”

Elsewhere in the transcript, Judge Breyer stated:

“They actually have law enforcement in Canada. If you’re so concerned about the way some Canadians are operating with a Canadian-based company in dealing with Ukrainians, you can always phone the Mounties and they will investigate it if they think it’s appropriate.”

[...]

This program, this program — there is no allegation here that somehow the program failed or was in jeopardy by virtue of — by virtue of this purportedly allegedly corrupt person giving a contract or favoring somebody in Ukraine. That’s not — that’s not what’s alleged here.”

Judge Breyer followed up his oral decision granting the motions to dismiss with this written opinion.  In it, Judge Breyer states, among others things, as follows:

“Of course, the United States has some interest in eradicating bribery, mismanagement, and petty thuggery the world over. But under the government’s theory, there is no limit to the United States’s ability to police foreign individuals, in foreign governments or in foreign organizations, on matters completely unrelated to the United States’s investment, so long as the foreign governments or organizations receive at least $10,000 of federal funding. This is not sound foreign policy, it is not a wise use of scarce federal resources, and it is not, in the Court’s view, the law.”

[...]

“There is no allegation that even one dollar of the millions of dollars the United States presumably sent to ICAO was squandered.”

Although outside the FCPA context, Judge Breyer’s decision and reasoning is nevertheless relevant to FCPA enforcement actions against foreign actors that are frequently brought on sparse jurisdictional allegations.

Moreover, Judge Breyer’s comment that there was no allegation that the alleged bribery compromised the integrity of the program at issue is relevant to causation issues discussed in prior posts (see here).

Friday Roundup

Friday, April 3rd, 2015

Roundup2Looking for talent – got talent, FBI announcement, Bourke related, to FCPA Inc., and for the reading stack.  It’s all here in the Friday Roundup.

Looking for FCPA Talent?  Got Talent

If your firm or organization is looking for either a summer associate or full-time lawyer with a solid foundation in the FCPA, FCPA enforcement, and FCPA compliance, please e-mail me at fcpaprofessor@gmail.com. I teach one of the only FCPA specific law school classes in the country (see here) and my Southern Illinois University law students who excelled in the class have, I am confident in saying, more practical skills and knowledge on FCPA topics than other law students.

I can recommend several students and I encourage you to give them an opportunity.

FBI Announcement

The FBI recently announced the establishment of international corruption squads.  In pertinent part, the release states:

“The FCPA … makes it illegal for U.S. companies, U.S. persons, and foreign corporations with certain U.S. ties to bribe foreign officials to obtain or retain business overseas. And we take these crimes very seriously—foreign bribery has the ability to impact U.S. financial markets, economic growth, and national security. It also breaks down the international free market system by promoting anti-competitive behavior and, ultimately, makes consumers pay more.

We’re seeing that foreign bribery incidents are increasingly tied to a type of government corruption known as kleptocracy, which is when foreign officials steal from their own government treasuries at the expense of their citizens. And that’s basically what these foreign officials are doing when they accept bribes in their official capability for personal gain, sometimes using the U.S. banking system to hide and/or launder their criminal proceeds.

The FBI—in conjunction with the Department of Justice’s (DOJ) Fraud Section—recently announced another weapon in the battle against foreign bribery and kleptocracy-related criminal activity: the establishment of three dedicated international corruption squads, based in New York City, Los Angeles, and Washington, D.C.

Special Agent George McEachern, who heads up our International Corruption Unit at FBI Headquarters, explains that the squads were created to address the national and international implications of corruption. “The FCPA allows us to target the supply side of corruption—the entities giving the bribes,” he said. “Kleptocracy cases allow us to address the demand side—the corrupt officials and their illicit financial assets. By placing both threats under one squad, we anticipate that an investigation into one of these criminal activities could potentially generate an investigation into the other.”

Corruption cases in general are tough to investigate because much of the actual criminal activity is hidden from view. But international corruption cases are even tougher because the criminal activity usually takes place outside of the U.S. However, members of these three squads—agents, analysts, and other professional staff—have a great deal of experience investigating white-collar crimes and, in particular, following the money trail in these crimes. And they’ll have at their disposal a number of investigative tools the Bureau uses so successfully in other areas—like financial analysis, court-authorized wiretaps, undercover operations, informants, and sources.

Partnerships with our overseas law enforcement counterparts—facilitated by our network of legal attaché offices situated strategically around the world—are an important part of our investigative arsenal. The FBI also takes part in a number of international working groups, including the Foreign Bribery Task Force, to share information with our partners and help strengthen investigative efforts everywhere. And we coordinate with DOJ’s Fraud Section—which criminally prosecutes FCPA violators—and the Securities and Exchange Commission—which uses civil actions to go after U.S. companies engaging in foreign bribery.

Our new squads will help keep the Bureau at the forefront of U.S. and global law enforcement efforts to battle international corruption and kleptocracy.”

Bourke Related

This October 2013 post highlighted a Democracy Now program that attempted to re-script the Frederic Bourke FCPA enforcement action.

Democracy Now returns to the story in this recent interview with former U.S. Senator George Mitchell.  Mitchell, like Bourke, invested in the Azeri project at issue, but unlike Bourke was not prosecuted.

Set forth below is the Q&A:

Democracy Now: Do you believe [Bourke] is a whistleblower, and do you believe that he should be exonerated.

Mitchell: Well, I believe that he should not have been convicted in the trial, in which conviction did occur. I think it was a very unfortunate circumstance, and as you describe it, regrettable from Rick Bourke’s standpoint.

Democracy Now: Do you believe he should now be exonerated, to be able to clear his name fully?

Mitchell: Well, yes, but I’m not sure what process would occur. He was tried, convicted. The conviction was upheld on appeal. But, as I said, I repeat, I do not believe he should have been convicted in the first place.

As noted in the prior post, while each is entitled to his/her own opinion about the Bourke case, the fact is – the case received more judicial scrutiny than arguably any other FCPA enforcement action.

To FCPA Inc.

It happens so often it is difficult to keep track of, but I try my best.

In the latest example of a DOJ FCPA enforcement attorney departing for FCPA Inc., Sidley Austin recently announced that James Cole (former DOJ Deputy Attorney General) “ has joined the firm in Washington, D.C. as a partner in its White Collar: Government Litigation & Investigations practice.”  As stated in the release, ““[Cole's] experience at the highest levels of law enforcement will enable him to counsel our clients facing the most difficult and complex challenges.”  Cole’s law firm bio states that he will focus “his practice on the full range of federal enforcement and internal investigation matters, with a particular emphasis on cross-border and multi-jurisdictional matters.”

While at the DOJ, Cole frequently articulated DOJ FCPA positions and enforcement policies.  (See here for example).

For the Reading Stack

From Professor Peter Henning in his New York Times Dealbook column – “Lawmakers Focus on How the SEC Does Its Job.”

From Miller & Chevalier attorneys – “DOJ is Losing the Battle to Prosecute Foreign Executives.”  An informative article regarding the DOJ’s struggles to prosecute foreign nationals for a variety of offenses (antitrust, FCPA, etc.).

An informative article here in the New York Law Journal by Marcus Asner and Daniel Ostrow  titled “A New Focus On Victims’ Rights in FCPA Restitution Cases.”

An interesting read here from the Wall Street Journal regarding China National Cereals, Oils and Foodstuffs Corp (Cotfco), a state-owned enterprise.

“In a few short years, Cofco has spent a couple billion dollars quietly buying up Australian cane fields, French vineyards and soybean pastures in Brazil, helping it become one of the world’s largest food companies. Now, Cofco is exploring deals in the world’s biggest exporter of agricultural commodities: the U.S.”

Weekend assignment:  are Cofco employees Chinese “foreign officials” under the 11th Circuit’s Esquenazi decision?

*****

A good weekend to all and “On Wisconsin.”

Is The DOJ Picking on Non-U.S. Companies and Individuals?

Wednesday, June 18th, 2014

Today’s post is from David Simon (Foley & Lardner).

*****

The debate over whether the United States should impose its values on the rest of the world through enforcement of the Foreign Corrupt Practices Act (“FCPA”) is over.

Almost everyone now rejects the cultural relativist argument—that there are different business cultures in different parts of the world, and that the United States should respect those differences and refrain from imposing our standards of doing business on U.S. companies operating abroad.  Rather, the rise of anti-corruption legislation, the proliferation of OECD standards, and increased enforcement—not only by the United States, but by many countries enforcing their own anticorruption laws—all show an emerging consensus that corruption of this nature is objectively bad.  The United States should be commended for leading the way on this.

Yet the recent enforcement activity of the Department of Justice[i] (“DOJ”) raises questions as to whether it is enforcing the FCPA in a manner consistent with the statute’s purpose (and the overarching purpose of domestic criminal law).  According to Deputy Assistant Attorney General James Cole, whose remarks are available here, that purpose is U.S.-centric:

“In enacting the FCPA … Congress recognized that foreign bribery had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies, and had hampered the functioning of markets, resulting in market inefficiencies, market instability, sub-standard products and services, and an unfair playing field.”

True enough, but it is hard to dispute that the focus of FCPA enforcement has to some extent shifted away from U.S. businesses and citizens.  As noted on FCPA Professor, eight of the top ten corporate FCPA settlements have involved non-U.S. businesses.

Likewise, the number of individual FCPA prosecutions against non-U.S. citizens has been increasing.  In recent years, individual criminal prosecutions have been brought against citizens of the Ukraine, Hungary, Slovakia, Switzerland, Venezuela, and Sri Lanka—and some involve very tenuous connections to the United States.

For example, as previously highlighted on this blog, in December 2011 the DOJ charged, among others, former Siemens executive and German national Stephan Signer under the FCPA based on conduct concerning the Argentine prong of the 2008 Siemens enforcement action.  The jurisdictional allegation against Signer was that he caused Siemens to transfer two wires to bank accounts in the United States in furtherance of a scheme to bribe Argentine government officials.[ii]

I do not argue that the FCPA does not permit the DOJ to charge non-U.S. citizens or companies.  Indeed, the 1998 amendments make it clear that Congress intended to give the DOJ that power, providing it with jurisdiction over several categories of non-U.S. entities and individuals.  It should be noted, however, that the DOJ has adopted a markedly broad interpretation of the FCPA’s territorial jurisdiction provisions, resulting in increasingly attenuated connections between the United States and individual defendants like Mr. Signer.  These connections may include merely “placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States.”[iii]  The legal significance of these increasingly tenuous jurisdictional justifications, previously referred to on FCPA Professor as “de facto extraterritorial jurisdiction,” remains a contentious, and related, issue.

The question I raise here is not whether the DOJ’s policy of enforcement is legal, but whether such a focus (or, at least, the perception of such a focus) on non-U.S. persons and companies is prudent and appropriate.  In describing the principles underlying the jurisdiction to prescribe, the American Law Institute (“ALI”) notes that the United States has “generally refrained from exercising jurisdiction where it would be unreasonable to do so.”[iv]  But “[a]ttempts by some states—notably the United States, to apply their law on the basis of very broad conceptions of territoriality or nationality [has bred] resentment and brought forth conflicting assertions of the rules of international law.”[v]  Indeed.

The concerns I have about this are not confined to FCPA enforcement.  The same trend is apparent in other areas of the law, such as economic sanctions and export controls.  The pattern of enforcement being concentrated against non-U.S. companies is shown just as sharply under those laws, with the recent economic sanctions against such firms as ING Bank ($619 million against Netherlands financial institution), Royal Bank of Scotland ($100 million against UK financial institution), and Credit Suisse ($536 million against Swiss financial institution).  With the U.S. Government reportedly considering the first $10 billion penalty for violations of U.S. economic sanctions laws against BNP Paribas (a French financial institution), French President Francois Hollande reportedly has personally lobbied against what is perceived as an unfair singling out of an EU financial institution for payment of such a large fine.  To the French Government, at least, the inequity of the U.S. Government assessing a fine that surpasses the entire yearly profits of one of the largest French financial institutions is plain.

The pattern of enforcement described above, should it be allowed to continue, sends a message to the rest of the world that the DOJ is mostly interested in big dollar settlements and soft foreign targets.  Is this the message we wish to send to our foreign allies in the fight against corruption?

Although the DOJ’s application of the FCPA (and other laws governing international business conduct)  to prosecute increasing numbers of foreign persons may be legal, and technically “reasonable” at international law, that does not necessarily make it appropriate or advisable.  Rather, these attempts to apply a broad conception of territoriality in pursuit of greater numbers of prosecutions and larger settlements may be more damaging than DOJ perceives.  This has the potential to undermine the U.S. position that anti-corruption is a global issue, and counteracts the progress the U.S. has made in altering its image from that of an overreaching imperialist power to a competent and moderate leader in the creation and enforcement of global anti-corruption norms.

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This article in today’s New York Times DealBook discusses many of the same issues highlighted in the above post.


[i] I focus here principally on the DOJ, not the SEC.  The DOJ, of course, is a law enforcement agency charged with enforcing criminal laws.  The SEC is a regulatory agency, and the companies and individuals subject to its jurisdiction essentially opt in by taking advantage of the U.S.’s financial markets.

[ii] Indictment at 40, United States v. Uriel Sharef, et. al., 11CR-1-56 (S.D.N.Y 2011), available at http://www.justice.gov/criminal/fraud/fcpa/cases/sharef-uriel/2011-12-12-siemens-ndictment.pdf.

[iii] See U.S. Dep’t of Justice & U.S. Sec. Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act, 11 (Nov. 14, 2012), available at http://www.justice.gov/criminal/fraud/fcpa/guide.pdf.

[iv] Restatement (Third) of the Foreign Relations Law of the United States, § 403 cmt. a. (1986).

[v] Id. at Chapter One: Jurisdiction to Prescribe, Subchapter A.: Principles of Jurisdiction to Prescribe, Introductory Note.

“Due Process” Limits on Criminal Enforcement of the FCPA Against Non-U.S. Nationals Based on Extraterritorial Conduct

Tuesday, May 14th, 2013

Today’s post is from Debevoise & Plimpton attorneys Sean Hecker, Steven Michaels, and Anna Domyancic.

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Earlier this year, two judges of the U.S. District Court for the Southern District of New York ruled on motions to dismiss SEC civil FCPA actions, invoking the International Shoe “minimum contacts” and “reasonableness” tests to determine whether the courts had personal jurisdiction over the foreign individual defendants in those cases.  The decisions in the Straub and Steffen cases — one (Straub, arising out of the Magyar Telekom matter) rejecting the motion and the other (Steffen, arising out of the Siemens-Argentina matter) granting the motion and ordering dismissal — mark important boundaries regarding personal jurisdiction over foreign individual FCPA civil defendants.

But does the reasoning of the recent civil enforcement decisions carry over to the criminal enforcement context?  Specifically, does “due process” mean the same thing in both criminal and civil FCPA actions brought against individual foreign defendants?

The answer is that, generally speaking, the civil and criminal “due process” minimum contacts tests overlap significantly, but not entirely.  The argument that it violates due process to prosecute FCPA criminal charges based on the lack of connection of the underlying facts to the United States has rarely, if ever, been raised, let alone litigated to conclusion.  But as the DOJ pursues more aggressive theories against foreign nationals who are not subject to the nationality principle of jurisdiction, and where the principal injured parties are foreign governments or marketplace competitors who may have no connection to the United States, the issue could gain traction.  It is thus worth considering how precedent in the criminal law “minimum contacts” due process arena compares to International Shoe’s test, including how it might apply in the FCPA context.

I.          Due Process “Nexus” Requirements in the U.S. Criminal Law Context

It is generally understood that, despite the limitations of the due process clause of the Fifth Amendment, U.S. federal criminal statutes may be applied to the extraterritorial conduct of foreign nationals when the law’s application would be neither “arbitrary [n]or fundamentally unfair.”  United States v. Davis, 905 F.2d 245, 249 (9th Cir. 1990).

Most of the courts of appeals to have ruled on the issue have held that due process requires a “nexus” between the United States and the defendant.  For non-U.S. citizens acting outside the United States, a “nexus” may exist when the aim of the defendant’s conduct is “to cause harm inside the United States or to U.S. citizens or interests,” including those outside the United States  See United States v. Al Kassar, 660 F.3d 108, 118 (2d Cir. 2011).  In Al Kassar, the defendants were foreign nationals, charged with conspiring to sell arms to a foreign terrorist organization knowing that the weapons would be used to kill U.S. citizens and destroy U.S. property, among other crimes.  The court determined that the aim of the defendants’ conspiracy established a “nexus” with the United States even though the defendants acted entirely outside the territory of the United States.

Cases like Al-Kassar illustrate how courts look to the protective principle in international law to determine whether a U.S. nexus exists.  The protective principle allows a nation to prosecute conduct occurring outside its territory if the conduct threatens the state’s security or similar interests.  See United States v. Perlaza, 439 F.3d 1149, 1161-62 (9th Cir. 2006).  Crimes like those in Al Kassar, as well as drug-smuggling, may support the exercise of jurisdiction under the protective principle, with some courts going so far as to hold no factual connection to the United States is required in drug cases if the acts at issue occur on “stateless” vessels on the high seas or those of nations that have consented to enforcement of U.S. law in their territories.  See United States v. Cardales, 168 F.3d 548, 553 (1st Cir. 1999); United States v. Martinez-Hidalgo, 993 F.2d 1052, 1056 n.6 (3d Cir. 1993).  Compare United States v. Perlaza, 439 F.3d 1149, 1169 (9th Cir. 2006) (requiring some U.S. connection); United States v. Angulo-Hernandez, 576 F.3d 59, 60 (1st Cir. 2009) (Torruella, J.) (dissenting from denial of en banc review) (noting conflicts among circuits as to the approach to narcotics cases).

In a decision in a non-FCPA foreign bribery context, the U.S. District Court for the District of Columbia in 2011 rejected a motion to dismiss criminal proceedings brought against an Australian national who, while employed as an advisor to the Afghan government, allegedly solicited $190,000 in bribes to be paid from U.S. funds supplied to a U.S. Agency for International Development (“USAID”) contractor.  Charged with anti-kickback violations and federal program bribery under 41 U.S.C. § 53 and 18 U.S.C. § 666(a)(1)(B), the defendant moved to dismiss on due process grounds, based on the lack of any U.S. nexus.  Rejecting the motion, the court invoked the protective principle as enabling the government to charge him for “conduct outside the nation’s territory [that] threatens the nation’s security or could potentially interfere with the operation of its governmental functions.”  United States v. Campbell, 798 F. Supp. 2d 293, 306-08 (D.D.C. 2011) (internal citations omitted).  The court held:  “Not only might Mr. Campbell’s actions hold the United States up to opprobrium in Afghanistan, every instance of such connivance robs USAID money from its intended purpose, hinders the United States’ substantial efforts in Afghanistan, and also robs USAID of support for its efforts from the U.S. taxpayer.”

II.        Comparison of Civil and Criminal Due Process Standards

The nexus requirement in criminal cases is in many respects similar to the “minimum contacts” test for personal jurisdiction in civil ones.  The Straub court found that the SEC’s complaint alleged sufficient minimum contacts with the United States because the defendants’ alleged concealment of bribes, along with the company’s falsified SEC filings, were sufficient to demonstrate that the defendants’ intent was to cause injury to U.S. interests in the transparent operations of SEC-regulated companies.  SEC v. Straub, 2013 WL 466600, at *7 (S.D.N.Y. Feb. 8, 2013).  The Steffen court found that the defendant did not have “minimum contacts” with the United States when he did not authorize the bribes at issue or falsify any SEC filings.  SEC v. Steffen, 2013 WL 603135, at *5 (S.D.N.Y. Feb. 19, 2013).  Considering that the “nexus” element of due process may be met in the criminal context if the defendant intends to cause injury to the United States or its interests, it is possible that acts similar to those the Straub defendants undertook could be found sufficient to confer jurisdiction in a due process sense in criminal matters involving foreign nationals acting abroad.  But the lack of clear precedent identifying which “U.S. interests” count for criminal law due process purposes in an anti-bribery context in which U.S. funds, property, or lives are not at issue raises possibly significant questions whether criminal jurisdiction might be more circumscribed.

At the same time, because the “reasonableness” due process test in civil matters focuses on several factors not strictly captured by the criminal law test, it is also possible that some defendants facing civil FCPA charges might have valid due process defenses where they might not if they were charged criminally for the same conduct.  In Steffen, the court found that the reasonableness test was not met due to “Steffen’s lack of geographic ties to the United States, his age, his poor proficiency in English, and the forum’s diminished interest in adjudicating the matter” after certain corporate settlements occurred, including in other jurisdictions.  How and whether any of these points would matter if they were raised as part of a due process challenge in the pending criminal case where Mr. Steffen has been charged remains to be seen.  Given that Mr. Steffen has not voluntarily appeared in the United States, is currently not subject to extradition proceedings, and cannot be tried under Federal Rule of Criminal Procedure 43 until he does appear, the issue may never be litigated in his case and may be rarely ripe in the FCPA context.

III.       Conclusion

The recent due process rulings in the civil FCPA matters in Straub and Steffen rightly raise the question of the jurisdictional limits that apply as a matter of due process in the criminal FCPA arena.  These constitutional issues, apart from the threshold matter of how and whether the FCPA was intended by Congress to apply in an extraterritorial context, an issue on which the Supreme Court’s recent decision in Kiobel v. Royal Dutch Petroleum Co., No. 10-1491 (U.S. Apr. 13, 2013) puts a spotlight, may become of increasing importance as the DOJ pursues aggressive jurisdictional theories against individual foreign nationals.  A lack of clear precedent will undoubtedly put pressure on litigants to settle and on the courts to resolve cases on non-constitutional grounds, but may ultimately lead to judicial pronouncements on the constitutional limits of the FCPA.