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What You Need To Know From Q1

This post provides a summary of Foreign Corrupt Practices Act activity and related events from the first quarter of 2013.

DOJ Enforcement

The DOJ did not bring any FCPA enforcement actions in the first quarter.  The last DOJ FCPA enforcement was in September 2012 (see here).

SEC Enforcement

The SEC did not bring any FCPA enforcement actions in the first quarter.  The last SEC FCPA enforcement action was in December 2012 (see here).

Other Developments

While there were no FCPA enforcement actions in the first quarter, there were several developments of note concerning the FCPA and related topics.  On the litigation front, two decisions from the Southern District of New York concerned jurisdiction over foreign national defendants as well as other issues.

SEC v. Straub

As highlighted in this prior post, in February U.S. District Court Judge Richard Sullivan (S.D.N.Y.) denied a motion to dismiss brought by former Magyar Telekom executives Elek Straub, Andras Balogh and Tamas Morvai (“Defendants”).  Magyar Telekom is a Hungarian telecommunications company that had shares listed on the New York Stock Exchange and previously resolved a joint DOJ/SEC enforcement action in December 2011.  (See here for the previous post).  In sum, the foreign national defendants moved to dismiss the SEC’s complaint (alleging the Defendants’ role in a bribery scheme in Macedonia) on three principal grounds:  (1) the court lacked personal jurisdiction over them; (2) the SEC’s claims were time-barred; and (3) the complaint failed to state claims for certain of its causes of action.

While obviously important to the case, Judge Sullivan’s personal jurisdiction conclusion was case-specific and the least important conclusion from the standpoint of FCPA case law.  (Whether a court can exercise personal jurisdiction over a specific defendant is a separate and distinct question from whether the jurisdictional element of an FCPA anti-bribery violation has been met – an issue also discussed in Judge Sullivan’s opinion).

Even though Judge Sullivan’s decision is a non-binding trial court decision, the two most important aspects of his decision concerned statute of limitations and the jurisdictional element of an FCPA anti-bribery violation.

As to statute of limitations, Judge Sullivan seemed to understand the logic of the Defendants’ positions, yet exhibited judicial restraint in concluding that the plain language of the applicable statute of limitations compelled the conclusion that the limitations period did not begin to run because the foreign national defendants were not physically present in the U.S.  In the words of Judge Sullivan, “it is not for this Court to second-guess Congress and amend” a statute.

As to the jurisdictional element of an FCPA anti-bribery violation, 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.

SEC v. Steffen

Shortly after the decision in Straub, Judge Shira Scheindlin (a federal court judge well versed in FCPA issues giving her involvement in the Bourke case) granted former Siemens executive Herbert Steffen’s motion to dismiss an SEC complaint in an FCPA enforcement action.  (See here for the prior post).  Because Judge Schneindlin concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process, she did not address Steffen’s other challenges, including as to statute of limitations issues.  Unlike the defendants in Straub, Steffen was not alleged to have signed any management representation letters used in connection with financial reporting.

In short, Judge Scheindlin stated as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.  […] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.  This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”

The lack of FCPA enforcement actions thus far this year has also provided an opportunity to pause and consider some big-picture FCPA issues.

The Need for an FCPA Lingua Franca

A common language within a niche industry/practice is critical for any number of reasons and there is a need for an FCPA lingua franca.  The current lack of an FCPA lingua franca has all sorts of negative effects, including an impact on the quality of FCPA  enforcement and related statistics, and the general “muddying” of the “conversational waters.”  In this post, I discussed the need for a lingua franca and previously offered definitions for “what is an FCPA enforcement action” and “what is a declination” (see also here).

Why Do FCPA Violations Occur?

Why do Foreign Corrupt Practices Act violations occur?  Do companies subject to the FCPA do business in foreign markets: (i) intent  on engaging in bribery as a business strategy and without a committment to  FCPA compliance; or (ii) with a committment to FCPA compliance, yet subject to  difficult business conditions?  In this post, I explored the relationship between two metrics – the World Bank’s Ease of  Doing Business Rankings and Transparency  International’s Corruption Perceptions Index.  In short, regulatory burdens (ranging from customs procedures, licensing and certification requirements, foreign government procurement policies, etc.) create bureaucracy, bureaucracy creates interactions with foreign officials, and the more interactions with foreign officials the greater the FCPA risk will be.

DOJ Enforcement Attorneys Join FCPA Inc.

First it was Nathaniel Edmonds (former Assistant Chief, DOJ Fraud Section, FCPA Unit) (see here) then it was former Assistant Attorney General Lanny Breuer (see here).

FCPA Reform Remains a Viable and Worthy Topic

At the FCPA Guidance press conference last November (see here), then Assistant Attorney General Lanny Breuer wisely noted that the Guidance was not “complete closure” to various concerns regarding the Foreign Corrupt Practices Act and he stated that the DOJ “welcomes” continued discussions regarding FCPA reform.  And why should non-binding enforcement agency Guidance be the end to FCPA reform discussions?  As Breuer and then SEC enforcement chief Robert Khuzami both acknowledged during the press conference, the Guidance “does not represent a change in policy.” And why should Wal-Mart’s potential FCPA scrutiny (one of approximately 100 companies currently the subject of FCPA scrutiny) which involves FCPA issues as a condiment to a bigger corporate governance sandwich be the end to FCPA reform discussions?  (See here for the prior post).

In the first quarter, a broad coalition of business groups called for FCPA reform (see here for the prior post) as did this White Paper from the Manhattan Institute.

The Story of George McLean

Several posts in March highlighted “The Story of George McLean.”  McLean was the first FCPA defendant in history to put the DOJ to its burden of proof in 1982.  McLean fought back, believed in his  innocence, and won.  The most amazing part of McLean’s story is that, for the most part, McLean  fought back as a pro se defendant.  Beyond being a compelling human story, McLean’s story also further  dispels the widely held myth that the DOJ has a high degree of success in FCPA enforcement actions when put to its burden of proof.  To the contrary,  before the Africa Sting defendants, before Lindsey Manufacturing, Keith Lindsey  and Steven Lee,  and before John O’Shea (all FCPA defendants who recently  ultimately prevailed against the DOJ in FCPA enforcement actions) there was George McLean.  In posts here and here George McLean told his story.

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