Recent Lawsuits Outline Rules for Prosecuting Foreign Nationals Under the FCPA

“The [Straub] decision … highlights the very broad reach sought by US authorities for the FCPA, and the risk that foreign national executives may find themselves facing FCPA enforcement actions in the United States based on minimal contacts with the United States, including their use of electronic communications services based in or routed through the United States.” (Foley Hoag)

Two recent judicial decisions coming out of the Southern District of New York provide valuable insight into the prosecution of Foreign Corrupt Practice Act violations committed by foreign nationals.

In the first, SEC v. Straub, Judge Richard Sullivan found that three executives of Magyar Telekom could stand trial in the United States even though they had never set foot in the country. His reasoning?

1. The defendants lied to the SEC when they filed false statements regarding Magyar Telekom’s US-listed securities:

“At the time, Magyar’s securities were publicly traded in the United States through American Depository Receipts (‘ADRs’) listed on the New York Stock Exchange. Defendants made certifications to Magyar’s auditors regarding the accuracy of the company’s financial statements and its internal controls. One of the defendants signed management representation letters to Magyar’s auditors and the other two defendants signed management sub-representation letters or ‘Sarbanes-Oxley certifications.’ … The Court reasoned that the defendants ‘allegedly engaged in a cover-up [of the bribe payments] through their statements to Magyar’s auditors[,] knowing that the company traded ADRs on an American exchange, and that prospective purchasers [of the ADRs] would likely be influenced by any false financial statements and filings.’” (Dechert)

2. Though the employees never came to the US, their email did:

“The SEC based its substantive jurisdictional argument on a series of emails to and from the executives, all of which were sent and received abroad, but were routed through or stored on servers in the United States. The court found that the defendants’ emails satisfied the FCPA jurisdictional requirement, regardless of whether the defendants actually knew of the location of the servers or actually intended their email to go through the United States” (Foley Hoag)

3. The five-year statute of limitations doesn’t start if the accused never enters the US:

“Judge Sullivan also held that the SEC’s action was not time barred under 28 U.S.C. § 2462, the ‘catch-all’ limitations period that applies in FCPA enforcement actions. Looking at the plain language of that statute and the statute’s ‘original purpose,’ Judge Sullivan concluded that the statute of limitations does not run while the defendant is living outside of the jurisdiction of the United States: ‘the operative language [of the statute] requires, by its plain terms, that an offender must be physically present in the United States for the statute of limitations to run.’” (Morrison & Foerster)

In contrast, Judge Shira Scheindlin dismissed charges against seven former Siemens AG executives accused of helping pay $100 million in bribes to Argentinian government officials. Key to the SEC’s case? False statements to the SEC regarding Siemen’s US-listed stock. Emily Stern and Joseph Gallo of law firm Katten Muchin Rosenman explain:

“The SEC … alleged that the executives made false certifications pursuant to the Sarbanes-Oxley Act regarding the accuracy of Siemens’ quarterly and annual certifications to the SEC.”

Why then did the judge dismiss the charges? Benjamin Klein and George Terwilliger of Morgan Lewis:

“Judge Scheindlin explained that, while ‘there is ample (and growing) support in case law for the exercise of jurisdiction over individuals who played a role in falsifying or manipulating financial statements relied upon by U.S. investors in order to cover up illegal actions directed entirely at a foreign jurisdiction,’ Steffen was not alleged to have engaged in such conduct. Judge Scheindlin found that Steffen did not authorize the alleged bribes, direct the alleged cover up, or play any role in the allegedly falsified filings.”

End of story? Maybe not, write attorneys at Ropes & Gray:

“These recent opinions … leave a great deal of uncertainty concerning the breadth of the FCPA, including exactly what constitutes minimum contacts sufficient to support personal jurisdiction under this U.S. statute. Moreover, the Straub court’s expansive view of the statute of limitations appears to significantly limit potential defenses available to foreign nationals with minimal U.S. contacts. Indeed, these potentially expansive lower court holdings present complex constitutional questions about the scope and extra-territorial reach of the FCPA that may provide fertile ground for future litigation.”

The updates:

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