Every now and then we see the headlines about some company or organization is being pursued for committing acts of corruption in different parts of the world. One could think about the latest FIFA corruption scandal or the Forbes listed Mr. Dmytro Firtash, who was detained in Switzerland, at the US extradition request under bribery charges in 2014. One could also notice that it is mostly US authorities who are discovering rotten activities in different spots of the world and bringing them to the light. But how do they do it? Who gave them the authority to act with such discretion on such a scale?
Let's assume, hypothetically, that you work for a multinational company somewhere in Ukraine as a country manager and have a limited legal background. After reading a few articles from FT about US anti-bribery actions, you might start getting worrying thoughts like this:
How can I make sure that my company, or even myself, will not be the next who will be pursued? How do I know if the US has the arm long enough to reach me or the company I work for? Is it even possible while I am thousands kilometers from New York or Washington? What are the names of those US “long arms”? And, eventually… Do they know what I did last summer?
Similar questions, probably with less drama though, could come to the minds of in-house lawyers and compliance officers of large companies doing business overseas. They can wonder, what are the legal grounds and specific provisions that enable US authorities to go around the world and pick their next victim? Moreover, how does it correspond with international law, does it rise above other countries’ jurisdiction, sovereignty or separation of powers concerns?
So, to address the above questions, let’s have a closer look at one of the world's most stringent and harshly enforced pieces of legislation, adopted more than three decades ago back in 1977, the “all mighty”, Foreign Corrupt Practices Act (“FCPA” or “Act”).
For starters, the FCPA has two enforcing bodies, or to put it differently, there are two furious arms of the FCPA. These are the US Securities Exchange Commission (SEC) and the US Department of Justice (DoJ). These two executive bodies are not specifically crafted to deal with violations of the Act, but both have separate departments that are dedicated to the subject. Their activity has increased vigorously during the last decade. The DoJ and SEC started with only 5 cases in 2004 and reached a pinnacle of 74 cases under review and an exorbitant $1.5 billion in criminal fines deriving from 7 enforcement actions in 2010.
Turning to the flesh of the Act, the latter has three provisions that provide the FCPA with its (extraterritorial) jurisdiction. Namely, (i) Section 78dd-1 of the Act prohibits bribing foreign officials for the purpose of obtaining or retaining business by “foreign issuers”. “Issuers” in this case refers to companies that are publicly trading their shares on any of US stock exchanges. Thus, it already covers most multinationals; (ii) Section 78dd-2 prohibits bribery by “domestic concern”. This section deals with corruption activities performed by US companies and persons. And, last but not least, (iii) Section 78dd-3 which extends beyond those two categories to “any person who while in the United States corruptly makes use of a means or instrumentality of interstate commerce in order to further any act of bribing a foreign official”. The latter, Section 78dd-3, is usually triggered and interpreted by SEC/DoJ in order to extend the FCPA’s influence overseas and justify a very light connection of the alleged perpetrators to the US.
The third section was added to the Act in 1998 to broaden the reach of the law. Almost simultaneously with Section 78dd-3, the world also saw an OECD convention on Combating Bribery of Foreign Public Officials in International Business Transactions. The FCPA adoption in 1977 created a huge industry lobby inside the US against the law since it made harder for American companies to do business elsewhere in the world. In its turn, US leadership had pressure applied on Europe. As a result, mentioned OECD Anti-Bribery convention saw the light and leveled the playing field for American and European business with regards to anti-corruption.
Let's now see how SEC and DoJ manage to use Section 78dd-3 of the FCPA to their advantage.
The Section indicates that it covers “any person”, this definition includes both natural persons and entities; “while in the United States” part of the provision was never questioned or interpreted by the court against the original intention of the legislator and is often freely interpreted by the DoJ and SEC far from the plain meaning and does not require a person to put foot on US soil or domicile the entity. Further, the notion of “instrumentality of interstate commerce” is also extremely broadly interpreted by enforcement bodies. The questionable interpretation allows broadening the scope of this legislation to practically any company or person that operates in any two countries of the world. According to the established practice of the SEC and DoJ, the slightest connection to the US, for instance use of the US dollar as a currency for a payment could trigger application of the FCPA.
I will give a few real life examples of SEC and DoJ way of thinking including analyses of the DoJ official bribery indictment of Mr. Dmytro Firtash (the trial is still ongoing) in the next part of this article. Stay tuned.
Dmytro is an associate legal adviser at a law firm in the Netherlands that provides a legal support to the pharmaceutical, biotech and clinical trial industry.
Dmytro obtained an LL.M. degree with distinction in International Business Law from Tilburg University, the Netherlands. He also graduated from Ukrainian university with a Master degree in Commercial Law.