United States: District Court Rules FCPA Jurisdiction Has Limits

Last Updated: March 18 2013
Article by Henry W. Asbill

Last fall, the U.S. Department of Justice and the Securities and Exchange Commission jointly issued their long-promised "Resource Guidance to the U.S. Foreign Corrupt Practices Act" (the "Guidance"). As we commented at the time, that Guidance, while useful, is perhaps as notable for what it does not say as for what it says.1 One important subject on which DOJ and SEC offered very little enlightenment is the extent to which the FCPA permits enforcement proceedings against foreign nationals whose allegedly unlawful conduct occurs wholly outside the U.S. Given both agencies' aggressive assertion of FCPA jurisdiction in recent years, the boundaries of that concept have seemed to move farther and farther outward with each successive case. A February 19, 2013, decision by Judge Shira Scheindlin in SEC v. Sharef, No. 11 Civ. 9073 (S.D.N.Y. Feb. 19, 2013), reminds us, however, that limits can and should be set.

In its very succinct treatment of FCPA jurisdiction, the Guidance largely states the obvious. On pages 11 and 12, it declares that the FCPA can apply to anyone who furthers a corrupt scheme by committing any act in U.S. territory or by using U.S. mails, wires, banks, or any other instrumentality of commerce, as well as to any U.S. national involved in corrupt payments anywhere in the world and anyone who acts directly or indirectly on behalf of any such person or entity. All of this comes from the express language of the statute and required little or no clarification. The Guidance augments it with the unremarkable declaration that foreign nationals and companies (including American subsidiaries) who conspire with, aid and abet, or serve as agents for FCPA violators will be subject to prosecutions themselves.2

The only hypothetical the Guidance offers on this topic deals with the straightforward situation in which executives of American "Company A" and European "EuroCo" meet in New York and plot to bribe high-ranking foreign oil ministry officials to approve their bid for a construction contract. To implement their scheme, they hire a "consultant" who meets with the plotters in New York and later greases the skids with millions of dollars funneled from his "commissions." Not surprisingly, the Guidance concludes that Company A, EuroCo, and the intermediary all face FCPA liability, with EuroCo and the intermediary potentially snagged as conspirators, even if their conduct wholly occurred outside U.S. territory. (Oddly, the Guidance says nothing about the risks faced by the individual executives whose meeting set the bribe in motion.)

The Guidance does not address other, more difficult scenarios where potential defendants somehow may involve themselves in a scheme that foreseeably impacts securities sold in the U.S., but neither directly implement the scheme themselves nor travel to this country while the scheme unfolds. Recent DOJ and SEC filings have signaled that even the most attenuated contact with this country may provide a jurisdictional hook by which to reel foreign offenders into American courts. For example, in its prosecution of Japan's JGC Corporation, one of the participants in the notorious Nigerian Bonny Island bribery scheme, DOJ based jurisdiction on allegations that wire transfers originating at a foreign bank in Amsterdam passed through correspondent New York banks before being credited to accounts in Switzerland and Monaco.3 And in moving to stay a civil suit against an alleged FCPA violator, DOJ declared its need to investigate a foreign corporation that allegedly received discounted aluminum prices in exchange for improper payments in Bahrain, noting that the payments had been made by offshore wire transfers through US accounts.4

The Sharef case took another step in this direction. In its 2011 complaint there, the SEC sued seven executives of Siemens and its subsidiaries, alleging their participation in a $100 million Argentinian bribery scheme extending for more than a decade.5  The defendants included Uriel Sharef, a former Siemens Managing Board Member; Herbert Steffen, a former CEO of Siemens S.A. ("Siemens Argentina"); and Bernd Regendantz, a former CFO of Siemens Business Services, which provided consulting, oversight, and management services for Siemens Argentina. The bribery scheme allegedly centered on a $1 billion contract to produce national identity cards for every Argentine citizen. The complaint asserted that the defendants initially bribed senior officials to win the contract, then unsuccessfully bribed other senior officials to reinstate the contract after a new government cancelled it, and later made still more bribes to cover up their conduct so that Siemens could pursue international arbitration proceedings in which it ultimately recovered more than $200 million for wrongful cancellation.

The SEC's allegations were particularly sparse as to defendant Steffen, a 74-year-old German national who retired from Siemens in 2003, four years before the scheme allegedly ended. Although the SEC's complaint declared generally that each defendant used means or instrumentalities of interstate commerce in the course of the scheme,6 it specified no such use by Steffen himself, nor any act of any kind by or directed by him in, to, or from the U.S. The complaint asserted only that: (i) he met with officials in Argentina and offered them the initial bribes (before any Siemens' securities were listed on the New York Stock Exchange);7 (ii) that Sharef called Steffen from the U.S. one or more times in connection with the scheme;8 that Sharef included him in a contract "crisis management team" in 2001;9 (iii) that Steffen and others "continuously urged" management to bribe officials to keep silent during the arbitration;10 (iv) that Steffen "urged" and "pressured" Regendantz in 2002 to authorize cover-up bribes that Regendantz ultimately approved after receiving instructions from more senior Siemens executives;11 and (v) that Steffen "urged" Sharef, his superior, to meet additional bribery demands in 2003.12 Steffen responded by moving to dismiss for lack of personal jurisdiction. On February 19, Judge Scheindlin dismissed him from the case, deciding that Due Process concepts of minimum contacts and reasonableness require more than the SEC alleged.

In opposition to Steffen's motion, the SEC argued that his conduct caused foreseeable consequences in this country. It declared that, as a senior Siemens executive, he was in a position to know the company's reporting obligations. He also would have understood that American investors relied on Siemens' public filings. Furthermore, when he pressured Regendantz to authorize bribes, he knew or should have known that Regendantz would sign false certifications that would result in false SEC filings.13 The SEC therefore contended that the complaint adequately alleged facts sufficient to support personal jurisdiction over Steffen.

Judge Scheindlin disagreed, finding that foreseeability alone has never sufficed.14 Holding that Steffen's actions were "far too attenuated from the resulting harm to establish minimum contacts,"15 Judge Scheindlin declared that:

[T]he exercise of jurisdiction over foreign defendants based on the effect of their conduct on SEC filings is in need of a limiting principle. 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. Illegal corporate action almost always requires cover ups, which to be successful must be reflected in financial statements. Thus, under 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.16

Assuming Steffen urged Regendantz to approve unlawful payments, Regendantz did so only after receiving instructions from his superiors. Unlike the defendants in SEC v. Straub, No. 11 Civ. 9645 (RJS), 2013 WL 466600, at *8 (S.D.N.Y. Feb. 8, 2013), where Judge Richard Sullivan very recently denied a similar motion, Steffen certified no misleading representations and signed no false SEC filings, exhibiting no intent to cause any tangible injury in this country.17 Here, the SEC did not allege that Steffen had actual knowledge of any falsification, nor did it contend that Steffen actually had authorized bribes himself. Moreover, it did not appear that he had initiated calls to or from the U.S. or directed funds to be routed through U.S. banks. His conduct was focused on Argentina, not the U.S. In Judge Scheindlin's view, the allegations against Steffen therefore fell "far short" of Due Process requirements.18

Judge Scheindlin relied on reasonableness considerations to bolster her decision:

Steffen's lack of geographic ties to the United States, his age, his poor proficiency in English, and the forum's diminished interest in adjudicating the matter, all weigh against personal jurisdiction. Geographic ties alone do not dictate the extent of the reasonableness inquiry. However, it would be a heavy burden on this seventy-four year old defendant to journey to the United States to defend against this suit. Further, the SEC and the Department of Justice have already obtained comprehensive remedies against Siemens and Germany has resolved an action against Steffen individually.19

Expect Judge Scheindlin's analysis to be widely quoted and referenced in the future, especially in discussions between defense counsel and our colleagues at the DOJ and SEC regarding ongoing investigations. Whether her views will lead to the reliable "limiting principle" she called for remains to be seen. We hope that one effect of her ruling will be to cause DOJ and SEC lawyers to proceed more cautiously. On the other hand, her decision may be downplayed as narrowly confined to very limited facts unlikely to be replicated in later cases. Still, her opinion serves as a clear pronouncement that FCPA jurisdiction has its limits. Unlawful foreign acts implicating SEC filings will not always warrant haling foreign actors into U.S. courts, and individual burdens faced by foreign defendants should be carefully and thoughtfully considered.

Footnotes

1.See"DOJ/SEC's Resource Guide to the U.S. Foreign Corrupt Practices Act: Jones Day Summary and Analysis, available here

2. "A foreign national or company may also be liable under the FCPA if it aids and abets, conspires with, or acts as an agent of an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States." Guidance at 12 (citing separate criminal informations filed against JGC Corporation and the Dutch subsidiary of an Italian corporation in connection with bribes of Nigerian officials considering an oil refinery bid).

3. See Criminal Information, United States v. JGC Corp., No. 11-CR-260 (S.D. Tex. April, 6, 2011), 19.e. and 22, posted here.

4. See Memorandum of Law in Support Of The Unopposed Motion Of The United States To Intervene And For A Stay Of Discovery, filed in Aluminum Bahrain B.S.C. v. Sojitz Corp., No. 4:09-cv-04032 (S.D. Tex. May 27, 2010), available here. It appears that DOJ also may have argued for jurisdiction, in part because of the payments' alleged effects in the U.S. aluminum market. See Amy Deen Westbrook, Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion Of The Foreign Corrupt Practices Act, 45 Ga. L. Rev. 489, 552-53 (2011).

5. See Complaint, SEC v. Sharef, No. 11 Civ. 9073, pp. 1-2 (S.D.N.Y. Dec. 19, 2011) ("Sharef Complaint").

6. Id. at 8.

7. Id. at 12.

8. Id.

9. Id. at 34.

10. Id. at 37.

11. Id. at 12, 39, and 40-42.

12. Id. at 51.

13. Plaintiff Securities and Exchange Commission's Memorandum in Opposition to Defendant Steffen's Motion to Dismiss the Complaint, SEC v. Sharef, No. 11 Civ. 9073, pp. 6-7 and 12 (S.D.N.Y. Oct. 12, 2012).

14. SEC v. Sharef, No. 11 Civ. 9073, slip op. at 13 (S.D.N.Y. Feb. 19, 2013).

15. Id. at 15.

16. Id. at 18-19 (footnote omitted) (emphasis in original).

17. Id. at 17.

18. Id. at 19.

19. Id

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.