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Delisting Of U.S. Securities As A Potential Negative Collateral Consequence Of Expansive FCPA Enforcement Against Foreign Issuers

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Foreign issuers (that is companies with shares traded on a U.S. exchange) are certainly 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 (in certain instances in apparent conflict with Supreme Court decisions) 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 understand FCPA scrutiny or in the aftermath of FCPA scrutiny.

In the most recent example, during its FCPA scrutiny Russia-based MTS stated that it will examine “whether or not having listing in the U.S. with associated costs continues to serve the best interests of shareholders, or whether a listing elsewhere may be preferable.” (See here).

  • 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, Germany-based Daimler 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.

The FCPA and Its Impact on International Business Transactions” a whitepaper written by a New York City Bar Association committee chaired by now SEC Chair Jay Clayton 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.

The same incentives apply to the decision as to where to list in the case of an IPO or other equity offering. Recent global IPO statistics reveal a substantial decrease in the relative share of IPOs listed on U.S. exchanges. In the 1990s, the yearly average of the number of U.S. IPOs comprised 26.7% of all IPOs in the world. Since 2000, the U.S. share of all IPOs has fallen to 11.7%.79 In 2010, seven of the ten largest global IPOs took place on Asian markets and only one in the U.S.

The costs imposed by the FCPA on U.S. regulated companies and on the U.S. capital markets more generally could be more acceptable if we had confidence that the goals of the FCPA were, or will be, furthered. However, there is a realistic possibility that the FCPA may be exacerbating the problem of corruption. We recognize that this may be a controversial statement. Nevertheless, it is logical that restricting U.S.-regulated firms from entering jurisdictions in which making improper payments to government officials is or may become more prevalent allows other companies—some of which operate under business principles and government regulations less transparent and public-regarding than the principles and regulations under which U.S. firms operate—to dominate those jurisdictions.”

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