Foreign issuers (that is companies with shares traded on a U.S. exchange) are subject to the Foreign Corrupt Practices Act.
The mere listing and trading is all that is required under the FCPA’s books and records and internal controls provisions for jurisdiction.
In contrast. the anti-bribery provisions – as applicable to foreign issuers – have the following jurisdictional requirement: “use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance” of a bribery scheme. Thus, as frequently highlighted on these pages, it is a myth that the FCPA’s anti-bribery provisions are extraterritorial as to foreign issuers. Nevertheless, it is true that the FCPA enforcement agencies take a very broad view of its jurisdiction over foreign issuers.
Yet, just because U.S. law enforcement can do something (such as enforce the FCPA against foreign issuers) does not necessarily mean that U.S. law enforcement should do something (or at the very least should do something pursuant to expansive enforcement theories) because the should may result in negative collateral consequences.
One such negative collateral consequence of expansive U.S. FCPA enforcement theories against foreign issuers may be foreign issuers choosing to delist its securities from U.S. markets.
Such foreign listings of course provide U.S. market participants with, in the aggregate, tens of millions of dollars of professional fees per year and when a foreign issuer delists all of that is lost.
This potential negative collateral consequence of expansive FCPA enforcement theories against foreign issuers is not a mere hypothetical as several foreign issuers have delisted at the same time they were under FCPA scrutiny or in the aftermath of FCPA scrutiny.
The most recent example concerns ABB Ltd. – a Swiss company that has resolved an FCPA enforcement not once, not twice, but three times. (See here for the prior post).
As stated in this recent ABB press release titled “ABB Files to Voluntarily Deregister and Suspend SEC Reporting Obligations”
“On May 23, 2023, ABB delisted its American Depositary Receipts (ADRs) from the New York Stock Exchange. In the period between June 1, 2023, and May 31, 2024, the 12-month US Average Daily Trading Volume (ADTV) in ABB’s ADRs has fallen to below 5 percent of the ADTV worldwide. ABB now meets the requirements to apply to deregister and terminate the reporting obligations for its debt and equity instruments under the U.S. Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”).
ABB is voluntarily filing today with the SEC a Form 15F to suspend immediately its reporting obligations under the U.S. Exchange Act. The deregistration and termination of its reporting obligations is expected to become effective 90 days after the filing, unless withdrawn by the Company or objected to by the SEC .”
Other foreign issuers that have delisted from U.S. markets at the same time they were under FCPA scrutiny or in the aftermath of FCPA scrutiny include the following.
- During its FCPA scrutiny, Hungary-based Magyar Telekom delisted its U.S. securities. (See here).
- During its FCPA scrutiny, Italy-based Fiat delisted its U.S. securities. (See here).
- During its FCPA scrutiny, Germany-based Allianz delisted its U.S. securities. (See here).
- In the aftermath of its FCPA enforcement action, Germany-based Siemens delisted its U.S. securities. (See here).
- In the aftermath of its FCPA enforcement action, Germany-based Daimler delisted its U.S. securities. (See here).
- In the aftermath of its FCPA enforcement action, Russia-based MTS delisted its U.S. securities. (See here).
No doubt there are many factors companies consider when deciding on which market or markets to list or delist its securities and just because a delisting occurs during FCPA scrutiny or in the aftermath of an FCPA enforcement does not therefore mean that the two are necessarily causally related.
Even so, a 2011 whitepaper (“The FCPA and Its Impact on International Business Transactions”) written by a New York City Bar Association committee chaired by Jay Clayton (who went on to become the SEC Chair) states:
“The costs to the United States of the FCPA extend beyond out-of-pocket costs and missed opportunities that are borne by specific firms subject to the FCPA. For example, the costs the FCPA imposes on U.S. regulated companies provide an incentive for non-U.S. companies not to offer or register their securities in the U.S., or, if they have previously listed their equity securities on a U.S. exchange, to delist, in an effort to avoid FCPA jurisdiction and other compliance costs. It is clear that the FCPA has contributed to the decisions of several companies to terminate their U.S. stock exchange listing. At least 60 companies that delisted their securities from a U.S. stock exchange between 2007 and 2011 specifically referred to the high administrative, regulatory and other costs associated with a U.S. listing as the reason for such decision and, in at least one case [obviously more given the above information], the delisting was announced shortly after an FCPA settlement.”
