FCPA Jurisprudence Alert
This recent post highlighted the SEC’s long-standing Foreign Corrupt Practices Act enforcement action against former Magyar Telekom executives Elek Straub, Tamas Morvai, and Andras Balogh and how Judge Richard Sullivan (S.D.N.Y) seemed poised to issue rulings that point towards a trial (which is scheduled for May 8, 2017). The procedural posture of the case was motions for summary judgment whereas Judge Sullivan’s 2013 ruling in the case (see here) was on motions to dismiss.
Last week, Judge Sullivan issued this opinion and order. The decision represents a rare instance of actual FCPA case law (albeit a trial court decision).
On the FCPA front, the decision goes into the weeds on a rather esoteric issue, that being what does “use” of an instrumentality of interstate commerce mean in connection with the FCPA’s jurisdictional element relevant to foreign issuers and those acting on its behalf.
Friday 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:
How A Foreign Non-Issuer Company Can Become Subject To The FCPA’s Anti-Bribery Provisions
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.
Issues To Consider From The Analogic Enforcement Action
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.
Other DOJ Defeats When Asserting Aggressive Enforcement Theories Against Foreign Nationals
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.