No Stone Unturned? The CFTC Targets Foreign Corrupt Practices Involving Commodity Interests - Commodities/Derivatives/Stock Exchanges

US Commodity Futures Trading Commission ("CFTC") Division of Enforcement ("DOE") Director James McDonald announced on March 6 that the agency would more closely partner with law enforcement and, for the first time, bring its own actions related to foreign corrupt practices. The Foreign Corrupt Practice Act ("FCPA"), enacted in 1977, generally prohibits payment of bribes to foreign officials to assist with obtaining or retaining business.¹ The CFTC also released an advisory on self-reporting and cooperation for Commodity Exchange Act ("CEA") violations involving the FCPA (the "FCPA Advisory").² To date, the CFTC has not brought any enforcement actions based on violations of the FCPA, and this appears to be a foray into new territory for the DOE.

FCPA: US Jurisdiction

Until now, the US Securities and Exchange Commission ("SEC") and the US Department of Justice ("DOJ") have been jointly responsible for enforcing the FCPA, which falls within the SEC's Title 15 jurisdiction over securities exchanges.³ The FCPA contains both anti-bribery prohibitions and accounting requirements. Specifically, an FCPA violation occurs where the government can prove there has been:

an offer, payment, promise to pay, or authorization to pay money or anything of value
to a foreign government official, or to any other person, knowing that the payment or promise will be passed on to a foreign official
with a corrupt motive
for purposes of (a) influencing any act or decision of that official, party, party official or candidate, (b) inducing the official, party, party official, or candidate to do or omit any action in violation of his lawful duty, (c) securing an improper advantage, or (d) inducing the official, party, party official, or candidate to use his influence to affect an official act or decision
in order to assist in obtaining or retaining business for or with, or directing any business to, any person.⁴

The SEC and DOJ have asserted broad extraterritorial jurisdiction over foreign companies and individuals for overseas conduct on the basis of a minimal nexus to the United States. The FCPA applies to both those with formal ties to the United States and those who take an action in furtherance of a violation while in the United States. Anti-bribery provisions apply to three categories of issuers and persons:

Any issuer of securities on a US stock exchange or company that has periodic reporting obligations to the SEC, regardless of its status as a US or non-US company, is prohibited from using US mails or any means of instrumentality of US commerce for corrupt conduct anywhere in the world. This prohibition also applies to officers, directors, employees and third-party agents of such issuers or any stockholder acting on behalf of an issuer, and any co-conspirators thereof.⁵
US persons are prohibited from violating the FCPA anywhere in the world. US persons include US citizens, resident aliens and businesses organized under US law or with a principal place of business in the US. Such persons may also be liable for the actions of officers, employees, third-party agents, foreign subsidiaries or stockholders acting on behalf of a domestic concern.⁶
Non-US persons are prohibited from violating the FCPA or engaging in any act in furtherance of a corrupt payment through US mails or any means or instrumentality of interstate commerce. Liability can extend to non-US entities through electronic communications such as email and financial transactions that flow through US entities or banks.⁷

Additionally, non-US persons can be liable for conspiracy or aiding and abetting conduct under US criminal statutes.

CFTC Begins FCPA Enforcement

Although the CFTC has had no role in FCPA enforcement, Director McDonald announced at the American Bar Association's National Institute on White Collar Crime that the CFTC now has open investigations into alleged foreign bribery and is working in parallel with SEC and DOJ enforcement teams.

One might reasonably question the basis of the CFTC's jurisdiction with respect to Title 15 FCPA violations. According to Director McDonald, the CFTC would have jurisdiction to prosecute actions where the conduct leading to the FCPA violation involved or impacted a commodity interest contract—e.g., a futures contract, commodity option or swap. The CFTC has long used such a jurisdictional basis to prosecute market manipulation in spot commodities such as natural gas and crude oil.

In his remarks, Director McDonald provided examples of how FCPA violations may arise within the CFTC's jurisdiction. For example:

Bribes might be employed to secure business in connection with regulated activities.
Corrupt practices could be used to manipulate benchmarks used to price and settle derivatives contracts.
Prices produced by corruption might be falsely reported.
Corrupt practices might alter prices in commodity markets that price US derivatives.⁸

Director McDonald indicated that the CFTC would conduct any investigation in parallel with other enforcement authorities but left room for civil monetary penalties that take into account fines imposed by another enforcement body. It is unclear whether the DOE would charge an FCPA violation or merely assess penalties for CEA violations related to foreign corruption.

CFTC Issues FCPA Advisory

The new self-reporting and cooperation advisory provides further guidance on three cooperation advisories the CFTC's DOE issued in January and September 2017.⁹ The FCPA Advisory applies to both individuals and companies not registered or required to register with the CFTC that timely and voluntarily disclose to the DOE violations of the CEA involving foreign corrupt practices, and then fully cooperate and appropriately remediate in accordance with the January and September advisories.

Where such cooperation takes place, the DOE presumes that it will recommend a resolution with no civil monetary penalty, absent aggravating factors. Such factors would include, among other things, the involvement of a company's executive or senior level management, the pervasiveness of the misconduct, or previous engagement in similar misconduct. Nonetheless, the FCPA Advisory provides that—even if the DOE recommends against a civil monetary penalty—the DOE would still require payment of disgorgement, forfeiture, and/or restitution, depending on the conduct at issue.

The FCPA Advisory states that the CFTC will seek all available remedies for companies and individuals who commit FCPA violations but do not voluntarily disclose.

Footnotes

1 Foreign Corrupt Practices Act of 1977, 15 U.S.C. § 78dd-1, et seq (FCPA).

2 CFTC, Advisory on Self Reporting and Cooperation for CEA Violations Involving Foreign Corrupt Practices, (March 6, 2019).

3 See United States Attorneys' Manual, Title 9, Criminal Resource Manual, 1018 Prohibited Foreign Corrupt Practices.

4 See FCPA, supra note 1.

5 15 U.S.C. § 78dd-1(a).

6 15 U.S.C. § 78dd-2(a).

7 15 U.S.C. § 78dd-3(a).

8 James McDonald, CFTC, Remarks at the American Bar Association's National Institute on White Collar Crime, (March 6, 2019).

9 CFTC, Cooperation Factors in Enforcement Division Sanction Recommendations for Companies (Jan. 19, 2017); and CFTC, Cooperation Factors in Enforcement Division Sanction Recommendations for Individuals (Jan. 19, 2017); CFTC, Updated Advisory on Self Reporting and Full Cooperation (Sept. 25, 2017).

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