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The Foreign Corrupt Practices Act Guide: A Retreat on Correspondent Bank Account Jurisdiction Under Section 78dd-3?

07 February 2013

This article is part of Allen & Overy’s ongoing analysis of the Guide. See our website www.allenovery.com/FCPAGuide for more information.

Past actions by the Department of Justice have stoked fears that the DOJ believes the Foreign Corrupt Practices Act applies to non-U.S. individuals and companies if they use U.S. dollars to make corrupt payments abroad, solely because those funds must pass through a U.S. correspondent bank account.

This expansive reading of the FCPA would mean that any bribery of foreign government officials involving U.S. dollar wire transfers would fall under the statute. It would mean, for example, that a Brazilian company, not U.S.-listed or incorporated, that made an illicit payment to an African official would be exposed to FCPA jurisdiction if that payment was made in U.S. dollars, even if no other part of the scheme touched the United States. Companies have worried about the scope of the DOJ’s reading of the statute on this point for years.

Now the DOJ and SEC’s Resource Guide to the U.S. Foreign Corrupt Practices Act (the Guide)1 appears to back away from the aggressive interpretation of the statute’s territorial jurisdiction provision found in earlier settled actions.

Territorial Jurisdiction Under The FCPA

The FCPA’s anti-bribery provisions apply to U.S. issuers2 and domestic concerns3, and any officers, directors, employees, agents, or stockholders of an issuer or domestic concern acting on its behalf that uses a means or instrumentality of interstate commerce in furtherance of a corrupt payment.4 In addition, Section 78dd-3 of the FCPA provides for “territorial jurisdiction” over legal and natural persons who are neither “issuers” nor “domestic concerns.” Specifically, Section 78dd-3 states that “[i]t shall be unlawful for any person other than an issuer [] or a domestic concern[], or for any officer, director, employee, or agent of such person or any stockholder thereof acting on behalf of such person, while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of [a prohibited payment under the FCPA].”5

While the text of Section 78dd-3 suggests that it only applies to actions that a foreign person or its agent takes while physically present in the United States, prosecutors have also sought to apply it to cover acts that a foreign person “causes” to be done in the United States.6 Using this theory, the DOJ has brought Section 78dd-3 cases in which one (but not the only) of the U.S.-based jurisdictional facts is a correspondent bank transaction.7 Additionally, in other, non-Section 78dd-3 cases, the government has used correspondent bank transactions to meet the “means or instrumentality of interstate commerce” jurisdictional requirement.8 Reading the tea leaves of these settled enforcement actions, there has been reason to fear that the government believes that it can bring a Section 78dd-3 case where the only U.S. conduct consists of a wire transfer through a U.S. correspondent account.

Does The DOJ Still Think It Has Correspondent Bank Transfer Jurisdiction?

The DOJ’s description of Section 78dd-3 jurisdiction in the Guide does not reflect the expansive and aggressive interpretation suggested by the settled cases described above.

The guidance on Section 78dd-3 is brief, and says merely that it reaches “foreign persons and foreign non-issuer entities that, either directly or through an agent, engage in any act in furtherance of a corrupt payment (or an offer, promise or authorization to pay) while in the territory of the United States.”9 This language appears to step back from the DOJ’s previous position that causing actions in the United States from abroad would suffice for territorial jurisdiction. By contrast, the Guide’s comparatively lengthy discussion of the interstate commerce test expressly claims that this test will be satisfied by a defendant’s “use of the U.S. banking system,” which could include U.S. correspondent accounts.10 If the DOJ believed that Section 78dd-3 is equally broad it presumably would have said so, for maximum deterrent effect.

The Guide’s conservative position on the scope of Section 78dd-3 jurisdiction may reflect the DOJ’s 2011 courtroom defeat in its most aggressive assertion of territorial jurisdiction to date. In United States v. Patel, a federal district court refused to let a Section 78dd-3 case go to the jury, ruling that proof that the defendant mailed a package from the United Kingdom to the United States in furtherance of an allegedly corrupt payment did not constitute an action by the defendant “while in the territory of the United States.”11 Although this was a ruling from the bench during trial, it remains the only court decision on the scope of Section 78dd-3. Indeed, there may be a causal link between the DOJ’s loss in Patel and the decision not to put forth an expansive reading of Section 78dd-3 in the Guide.

Moreover, despite the examples cited above of the DOJ’s use of correspondent bank transfers to ground Section 78dd-3 jurisdiction in settled actions, it has never brought a case based solely on such transfers. In settled enforcement actions against Snamprogetti Netherlands B.V. and JGC Corporation (respectively Dutch and Japanese non-issuers) arising out of the same set of facts, the government alleged that the defendants caused bribe-related U.S. correspondent bank transactions but chose not to bring Section 78dd-3 claims and instead asserted FCPA jurisdiction because the defendants were co-conspirators with and aided and abetted FCPA violations by a U.S. domestic concern.12

Conclusion

The Guide’s treatment of Section 78dd-3 jurisdiction, coupled with the Patel ruling, gives reason for some comfort that the DOJ will not deem a company not otherwise subject to the FCPA as having triggered Section 78dd-3 jurisdiction merely by engaging in U.S. dollar transactions that pass through a U.S. correspondent bank account in an otherwise wholly foreign transaction. We must remain cautious, however: correspondent account FCPA jurisdiction has never been expressly considered by any court, and the DOJ is notorious for aggressive attempts to expand the scope of its FCPA enforcement powers.

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1The Guide is available online at http://www.justice.gov/criminal/fraud/fcpa/guidance/ and http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.

2 Issuers include (i) companies that have securities registered on a national exchange or listed on the NASDAQ or (ii) that are required to file reports under section 15(d) of the Exchange Act. See 15 U.S.C. § 78dd-1(a).

3 Domestic concerns include (i) U.S. citizens, nationals, and residents and (ii) any business enterprises (such as corporations, partnerships, and associations) organized in the U.S. or with a principal place of business in the U.S. See 15 U.S.C. § 78dd-2(h)(1).

4 See 15 U.S.C. §§ 78dd-1(a) and 78dd-2(a).

5 See 15 U.S.C. § 78dd-3(a) (emphasis added).

6 See, e.g., Information, United States v. ABB Vetco Gray Inc., et al., No. 04-cr-279 (S.D.Tex. Jun. 22, 2004) (In a settled case, asserting Section 78dd-3 count on the basis that foreign non-issuer caused agent to wire funds to a U.S. bank account while outside the United States).
7 See Information, United States v. Siemens Bangladesh Limited, 08-cr-369 (D.D.C. Dec. 12, 2008) (bringing enforcement action against a foreign non-issuer under conspiracy to violate Section 78dd-3, citing both U.S. correspondent bank transfers and transfers from a Siemens account in San Francisco as bases for jurisdiction).

8 See, e.g., Non-Prosecution Agreement between the Department of Justice and Tenaris S.A. (Mar. 14, 2012), available at http://www.justice.gov/criminal/fraud/fcpa/cases/tenaris-sa/2011-03-14-tenaris.pdf. Note that a 1998 amendment to the FCPA added an alternative jurisdiction provision that removes the requirement that U.S. companies and persons use a means or instrumentality of interstate commerce. See 15 U.S.C. 78dd-1(g). After this amendment, the interstate commerce test remains necessary only for non-U.S. defendants, including foreign companies that are issuers under the FCPA.

9 Guide at 15.

10 See Guide at 11.

11 See Transcript of Jury Trial, United States v. Patel, et al., No. 09-cr-0335 (D.D.C. Jun. 6, 2011).

12 See Information, United States v. Snamprogetti Netherlands B.V., 10-cr-0460 (S.D. Tex. Jul. 7, 2010); Information, United States v. JGC Corporation, 11-cr-260 (S.D.Tex. Apr. 6, 2011).