This article was reprinted with permission
from FCPA Professor
This post provides a summary of Foreign Corrupt Practices
Act activity and related events from the first quarter of 2013.
The DOJ did not bring any FCPA enforcement actions in the
first quarter. The last DOJ FCPA enforcement was in September 2012 (see here).
The SEC did not bring any FCPA enforcement actions in the
first quarter. The last SEC FCPA enforcement action was in December 2012
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
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
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
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
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
Read more articles on the FCPA by Mike
Koehler at FCPA
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