United States: FCPA Update: Mid-Year 2013

Keywords: FCPA, SEC, Steffen,Straub,foreign nationals

Continuing a seven-year trend, 2013 has seen a continued surge in activity on the Foreign Corrupt Practice Act ("FCPA") front, both with respect to noteworthy new judicial decisions impacting the FCPA's applicability and significant enforcement actions brought by the Justice Department ("DOJ") and the Securities and Exchange Commission ("SEC"). Below, we briefly recap some of the most important FCPA happenings of the year so far.

Steffen and Straub—Defining the Reach of the FCPA

The year started with a pair of major decisions out of the Southern District of New York that provide guidance on the reach of the FCPA to foreign nationals. The decision in the first case, SEC v. Straub, et al. ("Straub"),1 largely vindicated the government's long-held position that the FCPA applies broadly to foreign nationals involved in overseas bribery schemes, regardless of whether the individual defendant had direct contacts with the United States. The second decision, SEC v. Sharef et al. (popularly known as "Steffen," after defendant Herbert Steffen),2 on the other hand, limits the government's position by making clear that the FCPA is still subject to traditional principles of personal jurisdiction.

Both cases involved civil charges brought by the SEC against foreign executives. In Straub, the defendants were executives of Magyar Telekom who allegedly bribed officials in Macedonia and Montenegro in order to influence new regulations in those countries. At the time, both Magyar and its parent company, Deutsche Telekom, were publicly traded on the New York Stock Exchange and were registered with the SEC. According to the SEC's complaint, the corrupt payments had been inaccurately recorded in Magyar's books, resulting in material misstatements in the company's annual SEC filings. The defendants—all foreign nationals—moved to dismiss, in part, on the ground that the US court lacked personal jurisdiction over them.

Calling the defendants' concerns "overblown," Judge Richard Sullivan denied the motion for essentially two reasons. First, the court explained, the SEC had shown a sufficient jurisdictional nexus by alleging that emails relating to the corrupt scheme had passed through computer servers in the United States, even though none of the defendants were actually in the United States when sending or receiving the emails. Second, the court said, because Magyar was registered with the SEC and traded in the United States, any attempt by the defendants to conceal their bribes in relation to public filings was conduct sufficiently "directed toward the United States" to give rise to personal jurisdiction.

Although the court stressed that it was not "creat[ing] a per se rule regarding employees of an [US] issuer," the opinion alluded to few, if any, limiting principles on the SEC's capacious view of personal jurisdiction. Under a broad reading of Straub, nearly any employee of a US issuer, wherever they are located, might be hauled into a US court under the theory that their participation in a corrupt scheme had consequences in this country.

On February 19, 2013, just 11 days after the Straub decision was issued by her Southern District colleague, Judge Shira Scheindlein granted a very similar motion to dismiss for lack of personal jurisdiction in Steffen. In that case, the defendant was an executive working for an Argentine subsidiary of Siemens, a German corporation that is publicly traded in the United States. According to the SEC's complaint, between 1996 and 2007, Siemens had paid more than $100 million in bribes to public officials in Argentina. The SEC did not contend that the defendant had been directly involved in paying the bribes. Rather, the complaint alleged that a Siemens board member had recruited the defendant to facilitate the bribes because of his ties to the Argentine government, and that the defendant had "pressured" executives to authorize the bribes during a telephone call with the United States.

Citing Straub, Judge Scheindlein's decision noted, "[i]t is by now well-established that signing or directly manipulating financial statements to cover up illegal foreign action, with knowledge that those statements will be relied upon by United States investors satisfies th[e] [personal jurisdiction minimum contacts] test." But, the court concluded, the "exercise of jurisdiction over foreign defendants based on the effect of their conduct on SEC filings is in need of a limiting principle."

The court then distinguished Straub by noting that the Steffen defendant had "neither authorized the bribe, nor directed the cover up, much less played any role in the falsified [SEC] filings." The court also rejected the SEC's argument that the defendant's telephone call with the United States provided a sufficient jurisdictional nexus, since the defendant personally "did not place [those] calls," he had merely participated on them. The court also noted its practical concerns regarding exercising personal jurisdiction over the defendant, emphasizing the defendant'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 ... [since the US government] ha[d] already obtained comprehensive remedies against Siemens' and Germany ha[d] resolved an action against [defendant] individually." To date, the SEC appears to have taken no steps to seek appellate review of Judge Scheindlein's decision. FCPA-watchers may have to wait a while before learning how the Second Circuit will resolve the apparent tension between Straub's broad application of the FCPA and Steffen's more limited view.

NonProsecution Agreements—A First for the FCPA

In another significant development for FCPA enforcement, on April 22, 2013, the SEC announced its first ever FCPA-related nonprosecution agreement (NPA), resolving its investigation into US apparel company Ralph Lauren Corp. The Justice Department was also a participant in the NPA. According to the NPA, employees of a Ralph Lauren subsidiary in Argentina had made almost $600,000 in corrupt payments to public officials in that country in order to secure favorable importation and customs treatment for Ralph Lauren products. Ralph Lauren executives had also provided costly products, such as clothing and perfume, to several public officials as unreported gifts.

In announcing the NPA, the SEC praised Ralph Lauren for its "level of self-policing, along with its self-reporting, and cooperation." The alleged violations had come to light after changes in the company's FCPA compliance program caused Argentine employees to report the problems. Ralph Lauren then quickly launched an internal investigation and made a voluntary disclosure to regulators within a few weeks of uncovering the payment scheme. Following this voluntary disclosure, Ralph Lauren also took other remedial actions and conducted a worldwide audit and compliance review, which found no other violations. Regulators at the SEC and the DOJ have touted Ralph Lauren's case as an example of the benefits that are accorded to those companies that responsibly handle FCPA violations and voluntary disclose such violations to law enforcement.

Enforcement Actions—Aggressive Regulators, Big Settlements, and A Focus on Individual Prosecutions

After a slow start to the year, federal regulators aggressively picked up the pace of FCPA enforcement over the spring and summer of 2013. By July 2013, the Justice Department had already brought 12 enforcement actions— it brought 11 in all of 2012.

The dollar values of some of these enforcement actions have been enormous. For example, on May 29, 2013, the DOJ and SEC announced a joint settlement with Total S.A., under which the French energy giant agreed to pay a $245.2 million fine to the DOJ and $153 million in disgorged profits to the SEC. Regulators had been investigating Total in connection with allegations that it paid approximately $60 million in bribes to Iranian officials in order to obtain oil and gas contracts. The combined $398 million settlement was the fourth largest monetary resolution in the history of the FCPA.

Even that hefty payment did not resolve Total's legal issues entirely. On the very day of the settlement, French prosecutors announced that they also intended to pursue Total and a number of its executives for violations of French law. Thus, the Total case stands as a stark reminder of two basic truths for multinational corporations: first, unaddressed FCPA violations can prove extremely costly; second, legal regimes in different countries can result in duplicative or overlapping exposures for those accused of violating anti-corruption laws. In brief, other notable enforcement actions from the first half of 2013 include:

  • Parker Drilling Company. On April 16,2013, this Houston-based drilling and project management company settled charges with the DOJ and the SEC, arising out of a longstanding investigation into an alleged scheme to bribe customs officers in Nigeria. According to the charging documents, Parker executives authorized an intermediary to pay approximately $1.25 million for the illicit purpose of "entertain[ing]" several Nigerian officials. To settle the charges, Parker agreed to pay a nearly $11.8 million fine and disgorge over $4 million in ill-gotten profits and interest.
  • BizJet Executives. In a sign of regulators' continued focus on individual prosecutions, on April 5, 2013, the DOJ announced criminal charges against four former executives of Tulsa-based aircraft maintenance company BizJet International Sales and Support, Inc. In March of 2012, BizJet and its German parent company entered into deferred prosecution agreements with the DOJ. According to those agreements, BizJet executives allegedly authorized and paid bribes to officials in Mexico and Panama in an attempt to secure contracts to service government air fleets in those countries. The DOJ's pursuit of criminal charges against the four executives demonstrates the agency's continued commitment to an enforcement model that favors incentivizing self-disclosure by corporations while aggressively prosecuting individual violators.
  • Frederic Cilins. In another significant individual prosecution, on April 15, 2013, the DOJ announced the arrest of French citizen Frederic Cilins for obstructing a grand jury investigation into an alleged corrupt scheme to obtain mining rights in the Republic of Guinea. The five-count indictment accuses Cilins of attempting to bribe the widow of a former high-ranking Guinean official to destroy documents that had been subpoenaed by the grand jury. Unbeknownst to Cilins, the widow was cooperating with the FBI and had recorded their conversations. Cilins has pleaded not guilty. His trial is currently scheduled for December 2, 2013.
  • BANDES Prosecutions. In May and June 2013, the DOJ arrested three employees of New York-based broker-dealer Direct Access Partners LLC ("DAP") and a senior minister of Venezuela's state economic development bank ("BANDES") relating to allegations that the employees had paid the BANDES official more than $5 million over a three-year period in exchange for directing more than $66 million in business to DAP. The Venezuelan official was detained in Miami, where she had come to visit the broker-dealer employees. The case represents the first criminal charges brought in what looks to become a widening investigation of the broker-dealer industry, with a particular focus on those brokerdealers doing business with foreign state banks or sovereign wealth funds.

Footnotes

1 No. 1:11-cv-09645-RJS (S.D.N.Y. Feb. 8, 2013).

2 No. 1:11-cv-09073-SAS (S.D.N.Y. Feb. 19, 2013).

Originally published August 13, 2013.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions