In the first part of this post I rather touched the theoretical part, i.e. what the law exactly says; now is the time to see real life examples of how FCPA is enforced and its extended overseas reach.
It is important to note that interpretation of legislation has always been a privilege of the judicial branch. However, most of FCPA cases never reach a courtroom and even fewer result in a completed trial. Thus, all “case law” is basically formed by the two enforcing bodies the SEC and the DoJ. The vast majority of suits are resolved through a settlement agreement between a company and a prosecutor.
Turning from theory to practice, let's now have a look at an international bribery case where a company, with de facto no affiliation to the US, made a huge contribution to the American budget. In 2006 the DoJ accused Norwegian company “Statoil” of bribing Iranian government officials to secure oil and gas supply contracts. The DoJ and Statoil reached an agreement, and the latter paid $21 million in fines to lift the accusations. At that time, it was the largest fine imposed under the FCPA on a foreign entity that did not have any operations in the US. The FCPA applicability was justified, among other, by the fact that allegedly corrupt payments were made in US currency and then, according to the financial routine, went through the US correspondent bank.
Eventually, the DoJ used a mere fact that the money passed through the US banking system as one of the grounds triggering FCPA application. It happened even though funds went from Norway to Iran for doing business outside the US, and the alleged company-perpetrator neither had an office in America, nor was trading its shares on US stock exchanges. Thus, Statoil case marked a new era of US authorities aggressively pursuing foreign entities.
You might recall that in the first part I spoke about broad interpretation of Section 78dd-3 of the FCPA and its “means of interstate commerce” part, a particular wording that US enforcers are piggybacking on. Here is an example of such misuse that should be interesting for Ukrainian readers.
According to the official indictment released in April 2014, Ukrainian politically exposed person and businessman Dmytro Firtash, who probably did not take US authorities seriously enough, was accused of money laundering by the DoJ. He allegedly authorized at least $18 million in bribes to Indian authorities to secure titanium coal mining businesses there. The trial is in the progress and the truth is still to be ascertained, but we can already analyze DoJ’s way of thinking. Part of the indictment reads as follows:
“...conspirators used and caused the use of the internet, and used and caused the use of e-mail accounts hosted on computer servers located within the United States to...”,
“...use of cellular telephones, including but not limited to a cellular telephone located in Chicago, Illinois, and operates of the interstate network of AT&T, with intent to...”
So, according to the US authorities, using internet or having a conversation that involves US based service provider could also be interpreted as an “instrument of interstate commerce”. This, in its turn, triggers FCPA jurisdiction over the bribery case through mentioned Section 78dd-3. I find it to be a very creative interpretation of the law.
To sum up, in the first part of the post I have analyzed the legislation and found out tricks that could be used to put almost any company on the spot. In this second part I demonstrated a few real life examples of how easily people were given hard time, including ongoing case of a famous Ukrainian businessman.
I hope you now have a better understanding of the real power of the FCPA and its enforcers, as well as their ability to bend the law in the “right” direction. And, therefore, it goes without saying that any businesses operating in Ukraine or entering an international arena should seriously consider anti-corruption compliance in the light of far-reaching arm of FCPA.
Dmytro is an associate legal adviser at a law firm in the Netherlands that provides legal support to pharmaceutical, biotech and clinical trial industries.
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.