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Supreme Court Questions Whether Dollar-Denominated Transactions Or Other Financial Transactions In The U.S. Are Sufficient To Assert Jurisdiction Over Foreign Corporations

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Largely because of how the DOJ and SEC have chosen to enforce the Foreign Corrupt Practices Act (that is resolution vehicles not subjected to any meaningful judicial scrutiny), the Supreme Court has never been presented with an opportunity to interpret the FCPA (and likely never will be so long as the current state of affairs continues). Heck, you can count on one hand (and have a few fingers left over) the number of substantive FCPA decisions issued by appellate courts.

Nevertheless, in recent years the Supreme Court has issued several decisions that are FCPA relevant and in every one the court has questioned certain aspects common in FCPA enforcement. The most recent example occurred in an Alien Tort Claims Act case (Jesner v. Arab Bank) in which the majority opinion questioned in dicta whether dollar-denominated transactions or other financial transactions in the U.S. are sufficient to assert jurisdiction over foreign corporations.

Prior to discussing the recent Jesner decision, this post highlights how such allegations are common in FCPA enforcement actions against foreign corporations.

In the FCPA Guidance, the DOJ and SEC confidently assert (relevant to jurisdiction over foreign actors):

“Thus, placing a telephone call or sending an e-mail, text message, or fax from, to, or through the United States involves interstate commerce—as does sending a wire transfer from or to a U.S. bank or otherwise using the U.S. banking system, or traveling across state borders or internationally to or from the United States” (emphasis added)

Consistent with this government position, several FCPA enforcement actions against foreign corporations (before and after the 2012 guidance) have alleged jurisdiction based on dollar-denominated transactions or other financial transactions in the U.S.

For instance, in the Snamprogetti/ENI enforcement action (a Dutch company), the DOJ alleged that officer, employees, and agents of Snamprogetti and their co-conspirators “caused wire transfers totaling approximately $132 million to be sent from Madeira Company 3’s bank account in Amsterdam, The Netherlands, to bank accounts in New York, New York, to be further credited to bank accounts in Switzerland and Monaco controlled by Tesler for Tesler to use to bribe Nigerian government officials.” (See here for the prior post). The DOJ alleged the same substantive allegation in the related Technip enforcement action (French company) as well as the related JGC Corp. enforcement action (Japanese company) (see here and here for prior posts).

In the VimpelCom enforcement action (Dutch company), the DOJ alleged that the company and a related entity “made numerous corrupt payments that were executed through transactions into and out of correspondent bank accounts at financial institutions in New York, New York.” (See here for the prior post). In the related Telia enforcement action (Swedish company), the DOJ likewise alleged that the company and a related entity “made and caused to be made, numerous corrupt payments that were routed through transactions into and out of correspondent bank accounts at financial institutions in New York, New York.” (See here for the prior post).

In the Teva enforcement action (Israeli company), the DOJ and SEC alleged that certain improper payments passed through intermediary or correspondent bank accounts located in the U.S. (See here in the prior post).

Other FCPA enforcement actions against foreign companies based on similar allegations could also be cited.

One of best pieces written about this controversial aspect of FCPA enforcement in this 2010 Shearman & Sterling alert which states:

“The use of correspondent account liability, which has not yet been challenged or litigated by any defendant, is a powerful tool for the U.S. authorities. In the past, although the U.S. authorities had jurisdiction over a foreign issuer’s books & records and internal controls by virtue of the issuer having filed periodic reports with the SEC, the U.S. authorities’ ability to reach conduct by foreign companies under the FCPA’s anti-bribery provisions had been circumscribed by the implicit requirement that the government prove that the foreign company had knowingly and deliberately taken some action in the United States in furtherance of a bribe to a foreign official. Correspondent account liability, assuming it can withstand judicial scrutiny, however, provides the U.S. government with the effective ability to reach the vast majority of U.S. dollar transactions,1 regardless of whether the foreign company recognized that a financial transaction between two foreign banks would pass through a bank in the United States along the way. It is true that, strictly speaking, the DOJ’s assertion of FCPA still does not impose extraterritorial jurisdiction on non-U.S. companies, but correspondent account jurisdiction takes it pretty far along the road.”

With this necessary background, recently the Supreme Court questioned whether dollar-denominated transactions or other financial transactions in the U.S. are sufficient to assert jurisdiction over foreign corporations. As stated in the majority opinion by Justice Kennedy, the background in Jesner (merely the most recent of several other Supreme Court cases to construe the Alien Tort Claims Act) was as follows:

“Petitioners in this case, or the persons on whose behalf petitioners now assert claims, allegedly were injured or killed by terrorist acts committed abroad. Those terrorist acts, it is contended, were in part caused or facilitated by a foreign corporation. Petitioners now seek to impose liability on the foreign corporation for the conduct of its human agents, including its then-chairman and other high-ranking management officials. The suits were filed in a United States District Court under the Alien Tort Statute, commonly referred to as the ATS. See 28 U. S. C. §1350. The foreign corporation charged with liability in these ATS suits is Arab Bank, PLC; and it is respondent here. Some of Arab Bank’s officials, it is alleged, allowed the Bank to be used to transfer funds to terrorist groups in the Middle East, which in turn enabled or facilitated criminal acts of terrorism, causing the deaths or injuries for which petitioners now seek compensation. Petitioners seek to prove Arab Bank helped the terrorists receive the moneys in part by means of currency clearances and bank transactions passing through its New York City offices, all by means of electronic transfers.”

[…]

Petitioners contend that international and domestic laws impose responsibility and liability on a corporation if its human agents use the corporation to commit crimes in violation of international laws that protect human rights. The question here is whether the Judiciary has the authority, in an ATS action, to make that determination and then to enforce that liability in ATS suits, all without any explicit authorization from Congress to do so.”

The court held “that foreign corporations may not be defendants in suits brought under the ATS.”

Yet in dicta, the court stated as follows relevant to the jurisdictional basis for the case (internal citations omitted).

“Most of petitioners’ allegations involve conduct that occurred in the Middle East. Yet petitioners allege as well that Arab Bank used its New York branch to clear dollar-denominated transactions through the Clearing House Interbank Payments System. That elaborate system is commonly referred to as CHIPS. It is alleged that some of these CHIPS transactions benefited terrorists. Foreign banks often use dollar-clearing transactions to facilitate currency exchanges or to make payments in dollars from one foreign bank account to another. Arab Bank and certain amici point out that CHIPS transactions are enormous both in volume and in dollar amounts. The transactions occur predominantly in the United States but are used by major banks both in the United States and abroad. The CHIPS system is used for dollar-denominated transactions and for transactions where the dollar is used as an intermediate currency to facilitate a currency exchange. In New York each day, on average, about 440,000 of these transfers occur, in dollar amounts totaling about $1.5 trillion. The “clearance activity is an entirely mechanical function; it occurs without human intervention in the proverbial ‘blink of an eye.’” There seems to be no dispute that the speed and volume of these transactions are such that individual supervision is simply not a systemic reality. As noted below, substantial regulations govern these transactions, both in the United States and in Jordan. In addition to the dollar-clearing transactions, petitioners allege that Arab Bank’s New York branch was used to launder money for the Holy Land Foundation for Relief and Development (HLF), a Texas-based charity that petitioners say is affiliated with Hamas. According to petitioners, Arab Bank used its New York branch to facilitate the transfer of funds from HLF to the bank accounts of terrorist-affiliated charities in the Middle East.

[…]

This Court next addressed the ATS in Kiobel, the case already noted. There, this Court held that “the presumption against extraterritoriality applies to claims under the ATS, and that nothing in the statute rebuts the presumption.” The Court added that “even where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application.”

With these principles in mind, this Court now must decide whether common-law liability under the ATS extends to a foreign corporate defendant. It could be argued, under the Court’s holding in Kiobel, that even if, under accepted principles of international law and federal common law, corporations are subject to ATS liability for human-rights crimes committed by their human agents, in this case the activities of the defendant corporation and the alleged actions of its employees have insufficient connections to the United States to subject it to jurisdiction under the ATS.” (emphasis added).

In short, even though Jesner was not an FCPA case, the court’s questioning of whether dollar-denominated transactions or other financial transactions in the U.S. are sufficient to assert jurisdiction over foreign corporations is most certainly FCPA relevant.

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