Archive for the ‘Foreign Nationals’ Category

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

Wednesday, June 18th, 2014

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

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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.

Current And Former Alstom Employees Charged In Connection With Payments In Indonesia

Wednesday, April 24th, 2013

The final catch-up post from recent FCPA enforcement activity – this one concerning the recently unsealed enforcement actions against David Rothschild and Frederic Pierucci.

First, what to make of this month’s enforcement activity?  Quite frankly, not much as I told Samuel Rubenfeld (Wall Street Journal) last week in this article.  Much of this “new” enforcement activity is really not ”new.”  For instance, the BizJet individual enforcement actions were filed in 2011 and in 2012, but recently unsealed.  Parker Drilling disclosed last year its settlement and the amount, it just took a while for resolution documents to be finalized.  It was publicly reported last year that former Siemens executive Uriel Sharef was going to settle the SEC enforcement action, it just took a while for the resolution documents to be finalized.  And finally, the charges against Rothschild and Pierucci discussed below were filed last year, but recently unsealed.

This post summarizes the Rothschild information (dated November 2, 2012) and plea agreement (dated November 2, 2012) and then the Pierucci indictment (dated November 27, 2012).

Pierucci, a French national, has been identified as a current executive of Alstom and he was arrested on April 14th at JFK airport in New York City.  Rothschild is a former vice president of sales for Alstom Power Inc., a Connecticut-based subsidiary of Alstom.

According to this report, Alstom said in a statement that it “has been working  constructively with the Justice Department for the last two years to address allegations of past misconduct.” It went on to say that Pierucci, its current executive, is entitled to the presumption of innocence.  “We urge everyone to respect the judicial process, which will provide a full  and fair opportunity for the facts to be adjudicated,” the statement read.

Rothschild Information

The conduct at issue concerned the Tarahan coal-fired steam power plant project in Indonesia.  According to the charging documents Perusahaan Listrik Negara (“PLN”) “the state-owned and state-controlled electricity company in Indonesia and an ‘agency’ and ‘instrumentality’ of a foreign government [...] was responsible for sourcing the Tarahan Project.

The officials allegedly involved were.

“Official 1  … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”

“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project.  Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”

The information charges one count of conspiracy and alleges that Rothschild and others, between 2002 through 2009, conspired to make “corrupt payments to a member of Parliament in Indonesia, officials at PLN, and others in order to obtain and retain business related to the Tarahan Project on behalf of the following entities and in violation of the FCPA’s anti-bribery provisions.

Alstom

Alstom Power Inc.

Power Company Switzerland – an indirect subsidiary of Alstom.

Power Company Indonesia – an indirect subsidiary of Alstom.

Consortium Partner – “a trading company … headquartered in Japan, incorporated in Japan, an in the business of providing power generation related services around the world.”  According to the information, this entity “acted as the partner” of the above Alstom entities “in the bidding and carrying out of the Tarahan Project in Indonesia.”  Consortium Partner would sure seem to be Marubeni Corp. of Japan.  (See here for its 2004 press release concerning the Tarahan Project).  This will be interesting to follow as Marubeni in 2012 resolved an FCPA enforcement action concerning conduct at Bonny Island, Nigeria (see here for the prior post) and is currently under a two year DPA.

Specifically the information alleges various telephone and e-mail communications between Rothschild and others concerning the alleged bribe payments and efforts to “conceal the payments to foreign officials by entering into consulting agreements with Consultant A (described as a “consultant who purportedly provided consulting related services [for the above companies] in connection with the Tarahan Project in Indonesia”) and Consultant B (same description) in order to disguise the bribe payment to the foreign officials.”

All of the alleged overt acts in the information allegedly occurred between 2002 and 2004, although the information does allege the following wire transfers:

In 2005 “200,064 from [Alstom Power Inc.'s] bank account to the bank account of Consultant A in Maryland”

In 2006 “200,064 from [Alstom Power Inc.'s] bank account to the bank account of Consultant A in Maryland”

In 2007 “200,064 from [Alstom Power Inc.'s] bank account to the bank account of Consultant A in Maryland”

In 2009, “66,688″ from [Alstom Power Inc.'s] bank account to the bank account of Consultant A in Maryland”

Other individuals generically identifed in the information include the following.

“Executive A – Senior Vice President for the Asia Region at [Alstom].  Executive A’s responsibilities at [Alstom] included oversight of [Alstom's] and [Alstom's] subsidiaries’ efforts to obtain contracts with new customers and to retain contracts with existing customers in Asia, including the Tarahan Project in Indonesia.”

“Executive B – who held executive level positions at [Alstom Power Inc.] and [Alstom], including Vice President of Global Sales [this is Pierucci].  Executive B’s responsibilities at [Alstom Power Inc.] included oversight of [Alstom Power Inc.] efforts to obtain contracts with new customers and to retain contracts with existing customers around the world, including the Tarahan Project in Indonesia.”

“Employee A - Vice President of Regional Sale at [Alstom Power Inc.]  Employee’s A’s responsibilities at [Alstom Power Inc.] included obtaining contracts with new customers retaining contracts with existing customers in various countries, including the Tarahan Project in Indonesia.”

“Employee B – the General Manager of Power Company Indonesia.  Employee B’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”

“Employee C – Director of Sales at Power Company Indonesia. Employee C’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”

In the plea agreement, Rothschild pleaded guilty to the one count information charging him with conspiracy to violate the FCPA.  According to the plea agreement, the offense carries a maximum penalty of 5 years imprisonment and a $250,000 fine.  Other than setting forth the DOJ’s recommendation that the court reduce by two levels Rothschild’s offense level “based on the defendant’s prompt recognition and affirmative acceptance of person responsibility,” the plea agreement does not set forth any further specifics concerning sentencing.

Pierucci Indictment

The indictment is based on the same core set of facts alleged above in the Rothschild information.  Because it is an indictment, and not an information, the Pierucci indictment is more detailed and indeed contains additional charges beyond the one count of conspiracy to violate the FCPA.  In addition, Pierucci is charged with four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.

In the indictment, the DOJ alleges that “Pierucci was one of the people responsible for approving the selection of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments to Consultants A and B was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project contract to [Alstom] and its subsidiaries.”

The indictment further alleges that Pierucci and others “came to the conclusion that Consultant A was not effectively bribing key Indonesian officials” and accordingly in 2003 Pierucci and others concluded “that Consultant A would be responsible only for paying bribes to Official 1, a member of the Indonesian Parliament” and that Alstom and its subsidiaries would retain another consultant to pay bribes to PLN officials.”

In this release, Acting Assistant Attorney General Mythili Raman stated as follows.

“Frederic Pierucci and David Rothschild allegedly used outside consultants to bribe foreign officials in Indonesia in exchange for lucrative power contracts.  Stamping out foreign bribery is a Justice Department priority, and we are determined to continue our vigorous enforcement of the Foreign Corrupt Practices Act.”

The Impact Of Kiobel On FCPA Enforcement

Thursday, April 18th, 2013

Yesterday, the Supreme Court released its long-awaited opinion in Kiobel v. Royal Dutch Shell Petroleum.

The precise issue before the court was “whether and under what circumstances courts may recognize a cause of action under the Alien Tort Statute (“ATS”), for violations of the law of nations occurring within the territory of a sovereign other than the United States.”

The opinion, authored by Chief Justice Roberts, holds that “the presumption against exterritoriality applies to claims under the ATS, and that nothing in the statute rebuts that presumption.”

Accordingly, the court in a unanimous opinion (several justices authored concurring opinions) affirmed the Second Circuit’s dismissal of a lawsuit brought by a group of Nigerian nationals residing in the United State who filed suit in federal court against certain Dutch, British, and Nigerian corporations, alleging that the corporations aided and abetted the Nigerian government in committing violations of the law of nations in Nigeria.

This post analyzes the impact of Kiobel on FCPA enforcement.

While the ATS and Foreign Corrupt Practices Act are separated by 188 years in terms of enactment, the statutes have often being viewed by some as siblings, or at least distant cousins within the same family.

However, it is important to grasp that the ATS and FCPA are very different statutes in very material ways.

The jurisdictional issue the Supreme Court addressed in Kiobel - whether the canon of statutory interpretation known as the presumption against extraterritorial application - was necessitated because the ATS was silent on the jurisdiction issue.  Indeed, Chief Justice Roberts stated that the canon “provides that when a statute gives no clear indication of an extraterritorial application it has none”  (emphasis added).

In contrast, the FCPA is explicit as to its jurisdictional scope and provides as follows depending on the category of person (legal or natural) subject to the law’s anti-bribery provisions.

As to U.S. persons (legal or natural) the FCPA provides for two types of jurisdictional.  The original statutory standard was (and is still part of the law) “use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance” of a bribery scheme.  However, in 1998 Congress amended the FCPA to also provide for so-called nationality jurisdiction as to U.S. persons.  15 USC 78dd-1(g) and 78dd-2(i) specifically state, in pertinent part, as follows:  “It shall also be unlawful for [any issuer organized under the laws of the United States or for any United States person] to corruptly do any act outside the United States in furtherance [of a bribery scheme] irrespective of whether such [U.S. person] makes uses of the mails or any means or instrumentality of interstate commerce in furtherance [of the bribery scheme].  In short, as to U.S. persons, in 1998 Congress explicitly amended the FCPA to provide for extraterritorial jurisdiction thus negating the need for reference to the canon of statutory interpretation at issue in Kiobel.

As to foreign issuers subject to 78dd-1 of the FCPA (i.e. foreign companies with shares registered on U.S. exchanges or otherwise required to file periodic reports with the SEC), the 1998 amendment found in 78dd-1(g) did not apply to such companies.  It can thus be inferred that Congress did not intend for the extraterritorial provisions of the 1998 amendments to apply to such entities.  Here again, the need for the canon of statutory interpretation at issue in Kiobel is negated.  For such foreign issuers, the FCPA explicitly provides only territorial jurisdiction as stated above.

As to persons other than U.S. persons (legal or natural) or foreign issuers, the FCPA was also amended in 1998 to create an entire new category of “person” subject to the FCPA’s anti-bribery provisions.  See 78dd-3.  This category applies to non-U.S. actors and non-foreign issuers such as foreign private companies and foreign nationals.   This FCPA prong has explicit jurisdictional provisions.  78dd-3(a) states, in pertinent part, that it shall be unlawful for “any person” other than an issuer or domestic concern (that is a U.S. “person”) ”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.”  Here again, because the FCPA is explicit, the need for the canon of statutory interpretation at issue in Kiobel is negated.

Just because the canon of statutory interpretation at issue in Kiobel is not directly applicable to the FCPA, it does not follow that Kiobel will not have an impact on FCPA enforcement.  To the contrary, the logic and rationale of many justices in Kiobel has direct bearing on certain aspects of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of certain aspects of FCPA enforcement.

Despite the above jurisdictional provisions clearly set forth in the FCPA, in recent years the DOJ has advanced broad jurisdictional theories in enforcement actions against foreign entities and foreign nationals.

For instance in 2006, the DOJ brought its first criminal FCPA enforcement action a foreign company, Norway-based Statoil (see here for the information), for engaging in a bribery scheme in Iran.  The sole jurisdictional allegation the DOJ hung its hat on was the notion that Statoil received an invoice from a U.K. consulting company instructing that money “be routed through a U.S. bank account in New York to a bank account in Switzerland” which the company paid.

In announcing this action, which resulted in $21 million flowing into the U.S. Treasury, the DOJ stated (here) as follows.

“Although Statoil is a foreign issuer, the FCPA applies to foreign and domestic public companies alike, where the companies stock trades on American exchanges.  This prosecution demonstrates the [DOJ's] commitment vigorously to enforce the FCPA against all international businesses whose conduct falls within its scope.”

Many similar DOJ enforcement actions against foreign companies have been brought since.  In fact, the majority of cases in the FCPA’s “Top Ten” in terms of fine and penalty amounts are against foreign companies including the Bonny Island, Nigeria enforcement actions in which the DOJ (and SEC) alleged that Dutch, French, and Japanese companies bribed Nigerian foreign officials.  The jurisdictional allegations in these cases, which resulted in approximately $1.1 billion flowing into the U.S. Treasury, all hinged on wire transfers through New York based accounts and faxes and e-mails to the U.S.  FCPA enforcement against foreign companies has been so prominent as to gain the attention of main-stream media such as the New York Times in this story.

In short, while the above FCPA enforcement actions against foreign actors (and several other examples could also be cited) did not rely on extraterritorial jurisdiction – because indeed there is none under the FCPA as to foreign actors – they did rely on what I’ve called de facto extraterritorial jurisdiction given the scant connection the bribery schemes had to the U.S.

It is here where the logic and rationale of many justices in Kiobel has direct bearing on this aspect of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of this aspect of FCPA enforcement.

For starters, Chief Justice Roberts recognized the delicate foreign policy consequences of the issue before the court – an issue that is present when the U.S. government alleges that foreign companies are bribing foreign officials on foreign lands.

It was also refreshing to see Chief Justice Roberts reference the “historical background against which the ATS was enacted” in giving meaning to the statute and how these historical events provided no support to the petitioner’s position.  I have long argued (see here for “The Facade of FCPA Enforcement“) that certain aspects of FCPA enforcement are inconsistent with Congressional intent – a notion that becomes all the more apparent when reading “The Story of the FCPA” – the most extensive piece ever written on the FCPA’s history that I published this past December upon the FCPA’s 35th anniversary.

The concurring opinion of Justice Alito, joined by Justice Thomas, is also instructive in that it states when the ATS “claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritoriality.”   Applying this to the FCPA context, can it truly be said that the above FCPA enforcement actions against foreign actors  touched and concerned the territory of the U.S. with “sufficient force”?

Even the concurring opinion of Justice Breyer, joined by Justices Ginsburg, Sotomayor and Kagan, is instructive.  This opinion did not invoke the presumption against exterritoriality in concluding that the claims should be dismissed, but rather found that jurisdiction was lacking for another reason.  Namely that the foreign corporations, while having shares traded on U.S. exchanges, had an insufficient presence in the U.S. such that it would be “farfetched to believe, based solely upon the defendants’ minimal and indirect American presence, that this legal action helps to vindicate a distinct American interest.”  The parallels to FCPA enforcement actions against foreign actors for alleging bribing foreign officials in foreign lands are obvious.

If FCPA enforcement actions against foreign actors are based on aggressive and dubious territorial jurisdictional theories – why don’t the companies aggressively litigate?

This highlights the second key difference between the ATS and the FCPA.  The only reason the Kiobel case made it to the Supreme Court is because the plaintiffs in ATS cases have little leverage against the corporate defendants.  ATS actions are civil actions brought by private plaintiffs and are thus actually litigated.  I know, it seems a bit old-fashioned doesn’t it.

In contrast, certain courts have held (although by no means is the argument that the FCPA ought to have a private right of action a fait accompli) that the FCPA does not have a private right.  The FCPA is thus only enforced by the DOJ (or the SEC as to issuers).  These government enforcement agencies, unlike ATS plaintiffs, have big and sharp sticks that corporate defendants (and individuals as well) are mindful of in deciding how to proceed when subject to FCPA scrutiny.

Indeed, as explained in this prior post, when the above referenced Japanese company charged for making bribe payments to Nigerian officials raised jurisdictional issues, the DOJ stated that the company was not cooperating.  Specifically the resolution document states as follows.  “After initially declining to cooperate with the Department based on jurisdictional arguments, [the company] began to cooperate.”  A company doesn’t cooperate with the DOJ in an FCPA enforcement, the chances are higher that the company will be indicted as opposed to being offered one of the resolution vehicles discussed below.

In short, to challenge a “plaintiff” in an FCPA enforcement action first requires a company to be criminally indicted by the DOJ or in the SEC context to be charged by the company’s primary government regulator.  The impact on the company’s market capitalization upon indictment or civil charging is likely to be much greater than the FCPA fines or penalties the DOJ and/or SEC are seeking.

Indeed, in the FCPA’s 35 year history only two companies have put the DOJ to its burden of proof at trial and both companies ultimately prevailed.  The first instance, involving an issuer occurred in 1991, and the second instance, involving a private company, occurred in 2011.

To make matters worse, per DOJ policy, all FCPA enforcement shall originate from Main Justice in Washington, D.C.  This means from a discretion and supervision standpoint that a very small group of individuals are in the charge of an entire area of law.  Contrast this with DOJ insider trading cases, financial fraud cases, etc. that can originate from any U.S. Attorneys office in the country

To make matters even worse, in 2004 the DOJ introduced non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) to the FCPA context.  These agreements have the practical effect of insulating DOJ FCPA enforcement theories in corporate enforcement actions from any judicial scrutiny.

These dynamics of FCPA enforcement are simply not present in ATS cases and for this very simple reason the ATS, unlike the FCPA, has been the subject of much litigation over the past decade.  Imagine if the ATS was only enforced by the government, consolidated entirely in one office in Washington D.C., and that the government used NPAs and DPAs to resolve the cases.

The Supreme Court would have never heard the Kiobel case, nor would the Supreme Court have heard the Sosa ATS case in 2004, nor would various appellate courts have heard ATS cases over the past decade or so.

Returning to the original question – will Kiobel have an impact on FCPA enforcement?  The logic and rationale of many justices in Kiobel would sure seem to have direct bearing on certain aspects of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of certain aspects of FCPA enforcement.

However, in order for judicial logic and rationale to be triggered, the judiciary needs to play a role, and in the FCPA context the judiciary rarely gets to play a role because of government enforcement policies.

“Far Too Attenuated” – Judge Grants Herbert Steffen’s Motion To Dismiss In SEC FCPA Enforcement Action

Wednesday, February 20th, 2013

Earlier this month Judge Richard Sullivan (S.D.N.Y.Y) denied a motion to dismiss in an SEC FCPA enforcement action against foreign national defendants.  (See here for the prior post discussing the decision in SEC v. Straub).  Judge Sullivan concluded that “the SEC has met its burden” at the early stages of the case to establish personal jurisdiction over the defendants in that the defendants had sufficient “minimum contacts” with the U.S. such that the exercise of personal jurisdiction over the defendants was “reasonable.”  Judge Sullivan only then proceeded to address statute of limitations issues as well as whether the jurisdictional element of an FCPA anti-bribery violation had been properly alleged.

It was noted in the prior post that similar issues were also presented in the SEC’s FCPA enforcement action against former Siemens executive Herbert Steffen, also in the S.D.N.Y.

Yesterday, Judge Shira Scheindlin (a federal court judge well versed in FCPA issues giving her involvement in the Bourke case) granted Steffen’s motion to dismiss the SEC’s complaint.  (See here for the opinion and order).  Because Judge Schneindlin concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process, she did not address Steffen’s other challenges, including as to statute of limitations issues.  Unlike the defendants in Straub, Steffen was not alleged to have signed any management representation letters used in connection with financial reporting.

In short, Judge Scheindlin stated as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.  [...] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.  This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”

The remainder of this post provides context and summarizes Judge Scheindlin’s decision.

As noted in this previous post summarizing the allegations in the SEC’s December 2011 complaint against seven former Siemens executives, the conduct at issue involved a sliver of the overall conduct at issue in Siemens high-profile 2008 FCPA enforcement action.  In short, the allegations concerned an alleged bribery scheme in Argentina concerning a national identity card contract and - as to Steffen (the former CEO of Siemens S.A. Argentina who retired in 2003) Judge Scheindlin summarized the allegations as follows.

 ”The Complaint alleged that [Defendant] Sharef recruited Steffen ‘to facilitate the payment of bribes’ to officials in Argentina because of his longstanding connections in Argentina, which he acquired during his tenure at Siemens Argentina.  Following the cancellation of the contract, beginning in December 2000, Steffen and Sharef began renegotiating with the Argentine government, including the newly elected President, which demanded that Siemens paid it bribes in order to reinstate the contract.  In order to facilitate payment of bribes to the Argentine officials, Steffen met several times with [Defendant] Regendantz, who become the Chief Financial Officer of [Siemens Business Services - SBS] in February 2002, and ‘pressured’ Regendantz to authorize bribes from SBS to Argentine officials.  In April 2002, Steffen told Regendantz that SBS had a ‘moral duty’ to make at least an ‘advance payment’ of ten million dollars to the individuals who had previously handled the bribes because he and other individuals were being threatened as a result of the unpaid bribes.  Once Regendantz authorized the bribes, the allegations against Steffen are limited to participation in a phone call initiated by Sharef from the United States in connection with the bribery scheme, and that in the first half of 2003, defendants including Steffen ‘urged Sharef to meet the demands [of Argentine officials] and make the additional payments.”

Judge Scheindlin next addressed whether the SEC’s complaint alleged sufficient facts to establish the two components of the due process – minimum contacts and reasonableness.  Judge Scheindlin noted that because the SEC alleged specific jurisdiction over Steffen, this required that he “purposefully directed his activities towards [the U.S.] and the litigation arises out of or is related to [Steffen's ] contact with the forum.

Judge Scheindlin then stated as follows.

“It is well-established that a court may exercise personal jurisdiction over a foreign defendant who causes an effect in the forum by an act committed elsewhere.  However, ‘this is a principle that must be applied with caution, particularly in an international context.’  ‘Foreseeability’ alone has never been a sufficient benchmark for personal jurisdiction under the Due Process Clause.’  Rather defendants must have ‘followed a course of conduct directed at … the jurisdiction of a given sovereign, so that the sovereign has the power to subject the defendant to judgment concerning the conduct.  The effects in the United States must ‘occur as a direct and foreseeable result of the conduct outside the territory’ and defendant ‘must know,or have good reason to know, that his conduct will have effects in the [forum] seeking to assert jurisdiction over him.”

After noting the legal standards for “reasonableness,” Judge Scheindlin concluded that the court lacked personal jurisdiction over Steffen in that the SEC did not establish minimum contacts and that the exercise of jurisdiction over Steffen was not reasonable.

As to minimum contacts, Judge Scheindlin stated as follows.

“The SEC’s allegations are premised on Steffen’s role in encouraging Regendantz to authorize bribes to Argentine officials that ultimately resulted in falsified filings.  While Steffen’s actions may have been a proximate cause of the false filings – and that is a matter of some doubt – Steffen’s actions are far too attenuated from the resulting harm to establish minimum contacts.  Steffen was brought into the alleged scheme based solely on his connections with Argentine officials.  In furtherance of his negotiations with those officials, Steffen ‘urged’ and ‘pressured’ Regendantz to make certain bribes.  However, Regendantz did not agree to make the bribes until he communicated with several ‘higher ups’ whose responses he perceived to be instructions to make the bribes.  Once Regendantz agreed to make the bribes – following receipt of instructions from Siemens’ management rather than Steffen – Steffen’s alleged role was tangential at best.  Steffen did not actually authorize the bribes.  The SEC does not allege that he directed, ordered or even had awareness of the cover ups that occurred at SBS much less that he had any involvement in the falsification of SEC filings in furtherance of those cover ups.”

In a footnote, Judge Scheindlin then stated as follows.

“Neither Sharef’s call to Steffen from the United States nor the fact that a portion of the bribery payments were deposited in a New York bank provide sufficient evidence of conduct directed towards the United States to establish minimum contacts.  First, Steffen did not place the calls to Sharef.  Further, Steffen did not direct that the funds be routed through a New York bank.  [...]  His conduct was focused solely on ensuring the continuation of the Siemens contract in Argentina.”

Judge Scheindlin then noted that in SEC v. Straub, the defendants not only orchestrated a bribery scheme aimed at the Macedonia government but also as part of the bribery scheme “signed off on misleading management representations to the company’s auditors and signed false SEC filings.”

Judge Scheindlin next stated as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.  Illegal corporate action almost always requires cover ups, which to be successful must be reflected in financial statements.  Thus, under the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.  This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.  The allegations against Steffen fall far short of the requirement that he ‘follow a course of conduct directed … the jurisdiction of a given sovereign, so that the sovereign has the power to subject the defendant to judgment concerning that conduct.  Absent any alleged role in the cover ups themselves, let alone any role in preparing false financial statements the exercise of jurisdiction here exceeds the limts of due process, as articulated by the Supreme Court and the Second Circuit.”

As to reasonableness, Judge Scheindlin stated as follows.

“The decision not to exercise jurisdiction in this case is bolstered by my conclusion that requiring Steffen to defend this case in the United States would be unreasonable.  [...]  When a defendant is not located in the United States, ‘great care and reserve should be exercised when extending our notions of personal jurisdiction into the international context.  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, all weight against personal jurisdiction.  [...] [I]t would be a heavy burden on this seventy-four year old defendant to journey to the United States to defend against this suit.  Further, the SEC and the Department of Justice have already obtained comprehensive remedies against Siemens and Germany has resolved an action against Steffen individually.  The SEC’s interest in ensuring that this type of conduct does not go unpublished will not be furthered by continuing the suit against Steffen, in light of his age, the burden to defend this suit, and the previous adjudications.”

*****

Steffen was represented by  Skadden lawyers Erich Schwartz (here – former Assistant Director of the SEC Enforcement Division) and Amanda Grier (here).  In an e-mailed statement, Schwartz stated as follows.  “We are extremely pleased with this decision, and in particular that the Court recognized the unreasonableness under the circumstances of forcing Mr. Steffen to answer these charges in the U.S.”