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Friday Roundup

Roundup

Scrutiny alert, a potential increase FCPA statutory penalty amounts, Second Circuit appeal begins, SEC enforcement chief on whistleblowers, marketing the black hole, of note, and a ripple. It’s all here in the Friday roundup.

Scrutiny Update

VimpelCom was not the only company involved in the Uzbek telecommunications bribery scheme. As highlighted in this prior post, Swedish telecom company (a company with ADRs registered with the SEC) and Russia-based Mobile TeleSystems PJSC (a company with shares traded on the New York Stock Exchange) have also been scrutiny.

Recently, Telia issued this release:

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How A Foreign Non-Issuer Company Can Become Subject To The FCPA’s Anti-Bribery Provisions

how

This recent report suggests that Angelica Rivera, wife of Mexico President Enrique Pena Nieto, is using a luxury property in Florida bought by a company (Grupo Pierdant) that is expected to bid for lucrative Mexican government contracts. According to the report, Grupo Pierdant has also paid the property tax on an additional Florida property bought by a holding company set up by Rivera.

This post uses the recent report to review how a foreign non-issuer company (such as Grupo Pierdant) can become subject to the FCPA’s anti-bribery provisions.

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Issues To Consider From The Analogic Enforcement Action

Issues

This previous post went in-depth regarding last week’s $14.9 million Foreign Corrupt Practices Act enforcement action against Analogic Corp. and a related entity.

This post continues the analysis by highlighting various issues to consider.

Sparse Allegations

Rarely has an SEC enforcement action against an issuer contained such few allegations against, well, the issuer.

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Other DOJ Defeats When Asserting Aggressive Enforcement Theories Against Foreign Nationals

You be the Judge

In the minds of some, the many recent DOJ defeats when put to its burden of proof in individual Foreign Corrupt Practices Act enforcement actions are of little consequence.

Some have written off the DOJ’s struggle in the recent Sigelman action because it was the result of a key witness admitting he gave false testimony during the trial.

Others have written off the DOJ’s ultimate defeat in the enforcement action against Lindsey Manufacturing and two of its executives because it was, most directly, the result of numerous instances of prosecutorial misconduct.

To some, the DOJ’s defeat in the O’Shea enforcement action  was no big deal because it was, most directly, the result of a key witness knowing “almost nothing” in the words of the judge even though the judge admonished the DOJ that it “shouldn’t indict people on stuff you can’t prove.”

The DOJ’s defeat in the Africa Sting cases, well, where do you even begin with that one.

However, you add up these defeats of little consequence in the minds of some, and the end result is a big consequence:  the DOJ often loses when put to its burden of proof.

The most recent example occurred in a pre-trial ruling in the DOJ’s FCPA prosecution of Lawrence Hoskins. The DOJ’s defeat was not because the quality of its evidence, not because of the DOJ’s conduct in the investigation, but rather a flawed legal theory.

The same people who are likely to view the above DOJ defeats as having little consequence are also likely to view the DOJ’s pre-trial defeat in Hoskins as an anomaly.

Except that it is not.

As summarized in this post, in three prior instances federal court judges have rebuked DOJ enforcement theories in FCPA enforcement actions involving foreign national defendants.

As highlighted in this prior post, in U.S. v. Castle, both the N.D. of Texas and the 5th Circuit ruled against the DOJ as a matter of law regarding the issue of whether “foreign officials” (in the case Canadian nationals) who are excluded from prosecution under the FCPA itself, could nevertheless be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA.  The courts held that “foreign officials”  could not be prosecuted for conspiring to violate the FCPA.  The rationale was that Congress, in passing the FCPA, only chose to punish one party to the bribe agreement and the DOJ could not therefore  ”override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts” through use of the conspiracy statute.  The court decisions were based in part on Gebardi v. United States, 287 U.S. 112, 53 S.Ct. 35, 77 L.Ed. 206 (1932), a case that also featured prominently in the recent Hoskins pre-trial ruling.

In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Shira Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.”  Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history.  Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer (as Swiss national) as follows.  “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.” Thus, the rule of lenity required dismissal according to Judge Scheindlin.

As highlighted in this prior post, in the Africa Sting enforcement action Judge Leon dismissed a substantive FCPA charge against Pankesh Patel (a U.K. national) based on the DOJ’s enforcement theory that Patel was subject to the FCPA’s jurisdiction because he allegedly sent a DHL packing in furtherance of the bribery scheme from the U.K. to the U.S.  Although Judge Leon did not issue a formal written decision, the trial court transcript is clear that he disagreed with the DOJ’s legal theory.

Granted the DOJ’s enforcement action against Hoskins remains active, but at present the DOJ is believed to be 0-4 when asserting aggressive FCPA enforcement theories against foreign nationals.

To some, this is of little consequence.

The rule of law would disagree.

It is interesting to note that the DOJ of course asserts aggressive FCPA enforcement theories against foreign companies as well.However, no foreign company has challenged the DOJ in these enforcement actions – it is simply easier, more certain and more efficient to roll over, play dead, and agree to resolve the enforcement action.

Yet, if certain foreign companies would have challenged the DOJ, the likely result in several enforcement actions may have been DOJ defeats.

Into The FCPA’s Jurisdiction Thicket

Thicket

The 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.

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