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.
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.