Pushing the limits of jurisdiction over foreign actors under the Foreign Corrupt Practices Act.

• Author: Wilson, Natasha N.

1. INTRODUCTION

   The Foreign Corrupt Practices Act (the "FCPA") (1) is the primary law used by the United States to combat global corruption and bribery. As anti-corruption efforts have intensified worldwide through the last two decades, the FCPA's enforcement agencies, the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC"), have prioritized FCPA prosecutions. (2) As part of these efforts, both agencies have signaled increasingly expansive interpretations of the FCPA's jurisdictional reach, particularly over foreign individuals and companies. This Note examines the jurisdictional bounds of the FCPA by analyzing two areas where the DOJ and SEC have suggested expansive jurisdictional interpretations: correspondent account liability and parent-subsidiary liability.

   Three hypothetical scenarios help exemplify the jurisdictional questions addressed in this Note. Consider which of these cases fall under the jurisdiction of the United States:

   * Alex is a U.S. citizen who lives in Nigeria and works for a Canadian-owned energy company. Alex is suspicious that the contract payments he has been approving as part of his regular business duties are being used in part to bribe Nigerian officials. He is not certain this is true and has been doing his best to stay out of it and avoid confirming his suspicions.

   * Beatrice is a British citizen employed by a Swiss company. She approved several transfers from a company account in Switzerland to a client account in Japan. Beatrice recently discovered that some of the money was used to purchase luxury cars for the Japanese officials who approved the client's operational license. The transfers were made in U.S. dollars.

   * Caro is a Panamanian company wholly owned by a U.S. company, Clare. Clare has minimal oversight over Caro's business and does not review, direct, or approve any of its day to-day operations. Caro's accounting team recently discovered that several members of its sales team have been bribing Brazilian officials to secure lucrative shipping contracts.

   Which of these corrupt acts can be prosecuted in the United States? The answer, according to the DOJ and the SEC, appears to be all of them. Alex is a straightforward case: U.S. citizens are subject to the FCPA, regardless of where they act, by virtue of their citizenship. (3) Beatrice and Caro, however, mirror examples of recent expansive jurisdictional statements by the DOJ and SEC in FCPA prosecutions. Acts as small as making a transfer in U.S. dollars between foreign accounts, as Beatrice did, may be enough to trigger prosecution. (4) Foreign companies may be liable based solely on their relationship with a U.S. company, as could be the case for Caro. (5) This expansion raises important questions for businesses worldwide seeking to understand what their potential exposure to FCPA liability may be and how to design adequate anti-corruption compliance programs.

   This Note examines the legality and policy implications of two particularly amorphous jurisdictional bases, exemplified in the hypothetical scenarios: correspondent account liability (Beatrice) and parent-subsidiary liability (Caro and Clare). (6) Part II details the history and development of the FCPA's provisions and application, including the recent expansion in FCPA enforcement. Part III discusses the development of jurisdictional interpretations of the FCPA, looking particularly at the two jurisdictional bases in question: correspondent account and parent-subsidiary. Parts IV (correspondent account liability) and V (parent-subsidiary liability) analyze the legality and policy implications of recent applications of these jurisdictional bases in FCPA cases. The Note concludes that the DOJ and SEC are extending their jurisdictional reach too far. It proposes that a more effective FCPA strategy would result from a change in focus: instead of reaching everyone who may be reachable, agencies should strengthen collaboration with companies and foreign governments as they develop their own strategies to combat corruption.

2. THE HISTORY AND DEVELOPMENT OF THE FCPA

   1. The History of the FCPA and Global Anti-Corruption Regimes

      The FCPA was enacted in 1977 as one of many changes made in response to Watergate and related political scandals. (7) Prior to passing legislation, the federal government gauged the corruption problem by giving companies a liability-free opportunity to disclose fraudulent business practices and found that these practices were alarmingly common. (8) In response, Congress unanimously passed the FCPA, citing concerns that corrupt business practices were hurting the U.S. economy and tarnishing the country's global support for democracy and free markets, which was especially crucial to U.S. policy during the Cold War. (9) The FCPA was enacted to clean up domestic business practices and to protect America's reputation and relationships abroad. (10)

      The FCPA was the first law in the world to prohibit international bribery, and initially, it was not widely used; only twenty-three enforcement actions were pursued during the FCPA's first ten years. (11) This slow start was largely attributable to concerns that the FCPA's vague provisions and lack of global equivalents would damage U.S. competitiveness in the international market. (12) A 1981 Government Accountability Office (GAO) report confirmed that companies felt they were losing overseas business as a result of the FCPA and also that, "assuming all other conditions were similar, American companies could not successfully compete abroad against foreign competitors that were bribing." (13) The DOJ implemented a guidance program in 1980 to help clarify how the law would be applied, (14) while the GAO stressed the need for the passage of similar anti-bribery conventions worldwide to level the playing field for U.S. businesses. (15) Congress amended the FCPA in 1988 and 1998 to further address these concerns and improve the efficacy of the Act. (16)

      The movement for international anti-bribery provisions eventually met some success as the Organization of American States, Organisation for Economic Co-operation and Development (OECD), United Nations, and a number of individual regions and states passed their own anti-corruption conventions in the 1990s-2000s. (17) As the international anti-bribery regime grew, concerns about unilateral application to U.S. businesses lessened, and the U.S. government adopted an aggressive FCPA enforcement regime "in a renewed effort to pursue corruption at all levels and all branches of government." (18) The United Kingdom's Bribery Act of 2010 (19) marked a serious step in the fight against global corruption, as its strict measures and international impact are, in many ways, comparable to those of the FCPA. (20)

   2. Nuts and Bolts of the FCPA

      The FCPA has two major sections: (1) a prohibition on bribery of foreign officials, and (2) accounting and reporting provisions for companies registered with the SEC. (21) The anti-bribery provisions, which are the focus of this Note, criminalize the "offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value" to foreign officials for the purpose of obtaining or retaining business. (22) There is an exception for payments or gifts made "to expedite or to secure the performance of a routine governmental action." (23) The statute also provides two affirmative defenses: defendants may be excused from liability if (l)the payment was legal under the written laws of the recipient's country; or (2) the payment was a "reasonable and bona fide expenditure" toward specific, enumerated ends. (24)

      The scope of the FCPA is limited. It criminalizes improper payments to public officials but does not address bribes paid in the private sector. (25) It can be used to prosecute only the parties who make the payments, not those who solicit or receive them, and only when the payers act with a corrupt purpose. (26) The statute claims jurisdiction over SEC issuers and U.S. citizens and companies worldwide, as well as foreign persons who violate the Act "while in the territory of the United States." (27) The FCPA is enforced by the DOJ and SEC and allows for civil and criminal penalties that may include steep fines, imprisonment, or both. (28)

   3. Current Trends in FCPA Enforcement

      The most important trend in FCPA enforcement is its rapid growth. As previously noted, the DOJ and SEC have significantly ramped up FCPA enforcement in recent years. For example, in the four-year period from 2002 to 2006, the United States brought a total of fourteen corporate enforcement actions, or an average of 3.5 per year; in 2010 alone, it brought twenty corporate enforcement actions. (29) Before 2006, there were fewer than ten individual enforcement actions a year; the numbers started growing in 2007, peaking with charges against forty-two individuals in 2009. (30) The DOJ and SEC have made it clear that increased enforcement is not a passing trend but rather a new norm. (31)

      Another key trend in FCPA enforcement is the increased move toward prosecuting individual actors rather than focusing primarily on companywide enforcement. (32) This change is likely intended to inspire more individual accountability in decision making and to avoid allowing "companies to calculate FCPA settlements as the cost of doing business." (33) It also raises the stakes substantially for individuals by increasing the likelihood of jail time and personal financial loss. The average FCPA sentence is around two years, but penalties vary widely; in 2011, one former executive was sentenced to fifteen years for his role in a bribery scheme. (34)

      The impact of the FCPA on global businesses is huge. The average FCPA case lasts 3.4 years from investigation to settlement, (35) resulting in large defense bills, increased compliance costs, hefty settlement fines, and, in...