International, US Foreign Corrupt Practices Act & Dodd Frank - Written by on Thursday, August 11, 2011 2:32 - 0 Comments

The US DOJ & SEC – Give’m an inch and they take a mile

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Think the Bribery Act is unfair?

It is not just the Bribery Act which has long arm jurisdiction.

Does your business have dealings with the United States?  If it does it may already be subject to the US Foreign Corrupt Practices Act (FCPA).

Reading the FCPA does not reveal the broad interpretation the US Department of Justice and Securities & Exchange Commission have applied in enforcing it producing fines running into hundreds of millions.

Against that back drop we asked our friends at Foley about the FCPA’s reach and the fact that many non US businesses were already subject to strict anti bribery laws before July 1.

By David W. SimonAlex Kramer, Foley & Lardner LLP

The Foreign Corrupt Practices Act (FCPA), similar to the U.K. Bribery Act, prohibits companies, their subsidiaries, and their officers, directors, employees, and agents from offering anything of value to a foreign official in order to obtain or retain business or to secure any improper business advantage.  U.S. enforcement agencies have taken an aggressive stance in enforcing this statute, particularly with regard to increasing the scope of the statue and its reach.  Non-U.S. companies are squarely within the crosshairs of U.S. enforcement agencies pursuing FCPA actions. Since 2007, nearly half of all corporate FCPA resolutions have involved non-U.S. companies. Additionally, non-U.S. companies have paid more than half of all FCPA-related fines and penalties in that same time period.

In order to pursue actions against non-U.S. companies, U.S. regulators have relied on four principal theories of jurisdiction:

First, the FCPA applies to “domestic concerns” and “United States persons,” including companies organized under the laws of the United States. Any non-U.S. company with a subsidiary incorporated under U.S. law might find that the U.S. subsidiary is subject to the FCPA. Depending on the circumstances, the parent company could also find itself subject to the FCPA.

Second, the FCPA applies to any “issuer” who has securities registered under Section 12 of the Securities Exchange Act of 1934 or who files periodic reports under Section 15(d) of the Securities Exchange Act of 1934. In practice, this means that any non-U.S. companies with stock traded on U.S. stock exchanges or with securities subject to filing requirements with the SEC are subject to the FCPA. Thus, any non-U.S. company that trades on U.S. markets, such as through the issuance of American Depositary Receipts, needs to be wary of the FCPA.

U.S. enforcement agencies have taken this yet a step further.  Last year, the SEC asserted jurisdiction over Panalpina, a non-US company that did not itself qualify as an “issuer.”  The SEC claimed jurisdiction because Panalpina aided and abetted violations of the FCPA by issuers.

Third, the FCPA applies to all officers, directors, employees, or agents of an issuer or domestic concern. Under this jurisdictional avenue, if a non-U.S. company’s U.S. subsidiary used an agent in a foreign country, the U.S. subsidiary (and possibly the parent) may be liable for the actions of the agent.

Fourth, and possibly most troubling, the FCPA applies to any person or entity, regardless of whether it fits into any of the definitions described above, that violates the FCPA within the territory of the United States. Again, the DOJ and SEC have taken an extraordinarily expansive stance on the definition of what qualifies as an illegal act that takes place on U.S. soil. Less controversially, the DOJ and SEC contend that the U.S. government has jurisdiction over activity where part of the FCPA violation occurred in the United States. This could occur where a bribe was actually paid or approved on U.S. soil.

U.S. enforcement agencies also argue that payments to foreign officials abroad made by non-U.S. citizens or companies, but which make use of U.S. financial institutions or mail, also are subject to jurisdiction under the FCPA. For example, if a non-U.S. company in Japan paid a bribe to a foreign official in India, but that payment was funneled through a bank account in New York, the DOJ could argue that the transaction is subject to the FCPA.   In the above-referenced Panalpina matter, DOJ cited an email and a conference call as the U.S. nexus.

There has been some judicial push-back on this expansive jurisdictional position.  In the first set of “Shot Show” trials in Washington DC, defendant Pankesh Patel sought and obtained an acquittal on an FCPA substantive charge where jurisdiction was premised on his sending a DHL package that contained a purchase agreement in furtherance of the alleged corrupt deal from the U.K. to the U.S.

It is also noteworthy that, in practice, settled enforcement actions predicated in part on the use of U.S. financial institutions have presented other bases for FCPA jurisdiction (e.g., that the target was an issuer or a U.S. domestic concern). Nevertheless, the DOJ and SEC have included facts and statements in their pleadings asserting jurisdiction based on the use of U.S. financial institutions. Whether or not the DOJ or SEC could successfully prosecute a case based solely on this is yet to be seen, but with their expansive view of jurisdiction, non-U.S. companies with business contacts with the U.S. should pay attention to the FCPA.

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