International media outlets are full of headlines heralding a new era of enforcement actions by the various government agencies of the United States and the U.S. Department of Justice (DOJ). One can hardly turn a blind eye on the skyrocketing fines being levied or settlement awards collected by the U.S. federal government – not only on its home turf, but around the globe – for violations of various U.S. laws by U.S. or foreign companies. The eye-popping USD 8.9 billion settlement agreed to by BNP Paribas, a French financial institution in 2014 to resolve allegations on violating U.S. sanctions against Iran and other countries sends a clear message. The U.S. has hard-hitting export products: U.S. federal statutes that have an extraterritorial reach.
One particular U.S. statute receives growing attention: the Foreign Corrupt Practices Act (FCPA). The FCPA was brought to life in 1977 in response to the widespread use of illegal payments to foreign officials by U.S. companies in furtherance of their business. It was a tool the U.S. Congress viewed as instrumental to creating a level playing field and to restoring the efficient functioning of markets. The FCPA has a dual purpose. It aims to curtail corruption through its so called “anti-bribery provisions”. The anti-bribery provisions prohibit the corrupt offering, payment or authorization of payment of money (or anything of value) to a foreign government official for the purpose of influencing this official in order to secure an improper advantage. The FCPA also ensures that the records of issuers accurately reflect the underlying transactions through its so called “accounting provisions”. The violation of either of these provisions may trigger civil and / or criminal liability. Criminal liability may involve a prison sentence on individuals.
Although designed to deter U.S. companies from engaging in corrupt practices, the number of FCPA enforcement actions against foreign entities has shown a steady increase in the past years. In fact the majority of the largest fines or settlement awards have been collected from foreign companies. A recent example is from 2014 when Alstom a French power and transportation company agreed with the DOJ to pay USD 772 million to settle charges related to an extensive global scheme involving tens of millions of dollars of bribes payment. Another trend worth noting is the rise in the number of prosecutions against individuals.
So what gives the tools to the U.S. Government to go after foreign entities or individuals for a violation of a U.S. statute? We find the answer by looking at who is covered by the FCPA. The anti-bribery provisions apply to issuers; domestic concerns (and the directors, officers, employees, agents and shareholders of both); and certain persons and entities while in the territory of the U.S.. Issuers can be foreign companies as well, if they have any securities listed on a U.S. exchange (such as American Depository Receipts or ADRs) or if any of their securities is traded over-the-counter in the U.S. and at the same time the company is required to file reports with the U.S. Securities and Exchange Commission (SEC). Domestic concerns are U.S. citizens, nationals or residents, or business entities organized under the laws of the U.S. or its states (or that have their principal place of business in the U.S.). Foreign persons or entities may be subject to territorial jurisdiction if they engage in any act in furtherance of an FCPA violation while in the territory of the U.S.
Sending an e-mail through a U.S. server (such as using a gmail account), making a telephone call through the U.S. or wiring funds through U.S. banks (that is using the means of interstate commerce) may establish jurisdiction over a violation. In 2013 in a case involving FCPA violations, a federal court found personal jurisdiction over foreign defendants on the basis of minimal contacts with the U.S. The defendants worked for a foreign company that had ADRs traded on a U.S. stock exchange, the defendants sent e-mails that ran through servers physically situated in the U.S. and the defendants attempted to disguise a bribery scheme by filing false reports with the SEC. These three elements were enough to hail these foreign individuals to a U.S. court.
Not to mention that investigators are often aided by whistleblowers coming to the fore in the hope of collecting rewards from the proceeds of fines or settlement awards. Under certain circumstances, whistleblowers may receive a financial reward between 10% and 30% of any fines or settlement awards. The media hype surrounding investigations and publicizing whistleblowers’ incentives ensures a steady stream of new cases.
So brace yourselves… And we have not even written a word about the UK Bribery Act!