Foreign Bribery: Feds Aggressively Use FCPA and the Money Laundering Statute

Investigations by the Watergate Special Prosecutor and SEC during the 1970s revealed that numerous U.S. companies had bribed foreign officials while doing business abroad. As a result, Congress in 1977 enacted the FCPA to curb foreign bribery in two ways. First, with some notable exceptions not pertinent here, the FCPA prohibited bribes (or offers of bribes) to foreign officials by U.S. persons or entities doing business overseas. Second, the FCPA required companies whose stock is registered with the SEC (issuers) to establish accounting and financial controls aimed at preventing corrupt payments to foreign officials.

As originally enacted, the FCPA's anti-bribery provisions had limited reach. As noted, the statute applied only to “issuers,” i.e., to companies whose stock was registered with the SEC or that were required to file reports with the SEC, and also to “domestic concerns.” 15 U.S.C. ” 78dd-1, 78dd-2. An individual was a “domestic concern” only if he or she was a U.S. citizen, national or resident. 15 U.S.C. ' 78dd-2(h). An entity was a “domestic concern” only if its principal place of business was in the U.S. or if it was organized under the laws of a state of the U.S. Id. Thus, liability generally was limited to U.S. companies or individuals that made corrupt payments to foreign officials.

That changed with enactment of the International Bribery and Fair Competition Act of 1998. Among other things, that Act expanded the FCPA's reach to foreign companies and persons that directly or indirectly caused to occur within the U.S. an act in furtherance of a corrupt payment abroad. However, even after the 1998 amendment, if a party did not directly or indirectly cause such an act to occur within the U.S., the party was immune from FCPA liability. As a result, foreign nationals or companies (except those registered as issuers) whose unlawful acts occur entirely outside our borders have been thought to be outside the FCPA's reach.

Moreover, government efforts to broaden the FCPA's scope by charging exempt persons or entities with conspiring to violate the statute have been rejected by courts. In United States v. Castle, 925 F.2d 831, 836 (5th Cir. 1991), for example, the government charged two Canadian officials with conspiring to violate the FCPA after they agreed to accept bribes from a U.S. company. The U.S. Court of Appeals for the Fifth Circuit held that because foreign officials who receive bribes cannot be charged with primary violations of the FCPA, they also cannot be charged with conspiring to violate the statute. In short, because Congress had specifically excluded a class of alleged wrongdoers from the FCPA's reach, the Fifth Circuit concluded that the government could not use a conspiracy theory to reach them.

Notwithstanding this seemingly well-settled principle, several recent cases suggest that the government is becoming more aggressive in using conspiracy and aiding and abetting theories to bring enforcement actions against non-U.S. companies and persons whose core violations involve foreign bribery schemes.

U.S. v. Snamprogetti Netherlands B.V.

A notable recent example is U.S. v. Snamprogetti Netherlands B.V., No. 10 Crim. 460 (S.D. Tex.). Snamprogetti, a Dutch corporation, was part of a joint venture that allegedly authorized bribes to Nigerian officials to obtain contracts to build liquefied natural gas facilities in that country. In July 2010, Snamprogetti and its current and former Italian parent companies entered into a deferred prosecution agreement with the Justice Department calling for a $240 million dollar fine. Snamprogetti separately agreed to pay $125 million in disgorgement to settle SEC charges.

Notably, the Justice Department did not allege that Snamprogetti committed a primary violation of the FCPA. Rather, Snamprogetti was alleged to have entered into a conspiracy with its joint venture partners and others to pay bribes through intermediaries and to have aided and abetted those same acts. The charging document in that case contained no allegations of direct conduct by Snamprogetti within the U.S. in furtherance of the alleged FCPA conspiracy. Instead, the government relied on allegations that Snamprogetti and its co-conspirators caused wire transfers to flow through bank accounts in New York, and that the company's alleged co-conspirators caused emails and faxes to be sent to other co-conspirators in Houston, all in furtherance of the alleged conspiracy.

Thus, to support its charges, the government appears to have attributed to Snamprogetti the conduct of its purported co-conspirators, notwithstanding the fact that the company's core bribery scheme appears to have had little or no connection to the U.S. While the government would likely argue that U.S. wire transfers made in support of the conspiracy provided a sufficient jurisdictional predicate to support FCPA liability, the case nevertheless can be seen as an incremental step toward the day when the acts of U.S.-based co-conspirators are attributed to foreign actors for FCPA purposes even when those acts were not “caused” by the foreign actor within the meaning of the FCPA.

SEC v. Panalpina

In November 2010, the SEC announced civil settlements with several companies in oil services industries, including Panalpina Inc., a global freight forwarding and logistics services company, for violating the FCPA. The SEC alleged that Panalpina, the U.S. subsidiary of a Swiss parent, bribed customs officials in more than 10 countries in exchange for various benefits, including preferential customs duties and import treatment for international freight shipments. Panalpina agreed to pay $11,329,369 in disgorgement to settle the charges. Panalpina and its Swiss parent also agreed to pay the Justice Department a criminal fine of $70.56 million.

While Panalpina, as a U.S.-based entity, clearly could have been (and was) charged with violations of the FCPA as a principal, the SEC's complaint is notable because it conceded that neither Panalpina nor its parent were issuers. Despite this, the complaint charged Panalpina with two counts of aiding and abetting FCPA violations by customers of the company that were issuers. According to a statement by an SEC official, this was the first time that the agency had charged a non-issuer with FCPA violations. Thus, Panalpina potentially represents an effort by the SEC to expand its focus beyond “issuers” through application of aiding and abetting or, potentially, conspiracy, theories of FCPA liability.

U.S. v. Siriwan

Another example of non-traditional anti-bribery enforcement is the Justice Department's indictment of a Thai public official, Juthamis Siriwan. See U.S. v. Siriwan, No. 09 Crim. 0081 (C.D. Cal.). In that case, the government alleged that the defendant, the former head of the Tourism Authority of Thailand, accepted bribes from two U.S. citizens who owned and operated several businesses in Southern California. In exchange, Siriwan allegedly secured several lucrative Thai contracts for her U.S. benefactors.

Siriwan was not charged with any FCPA violations because, as discussed already, foreign officials who do no more than receive bribes from a covered person or entity are beyond the reach of the statute. Instead, the Justice Department charged Siriwan under the federal money laundering statute, 18 U.S.C. ' 1956, on the theory that she had laundered money for the purpose of furthering the primary FCPA violations allegedly committed by her U.S. bribe-givers. In essence, rather than charging Siriwan with accepting a bribe, the government charged her with conspiring to transport the money used for the bribe.

To be sure, the government's theory was not entirely novel. In U.S. v. Bodmer, 342 F. Supp. 2d 176 (S.D.N.Y. 2004), Manhattan federal district Judge Shira Scheindlin rejected a defendant's motion to dismiss in similar circumstances, noting that “i[f] immunity from the FCPA's criminal penalties automatically conferred non-resident foreign nationals with immunity from the money laundering statute, these non-resident foreign nationals could openly serve as professional money launderers of proceeds derived from violations of the FCPA, without repercussion.” Id. at 191. Combined, however, with the kind of aggressive use of the FCPA reflected in the Snamprogetti and Panalpina cases, the charging theory in Siriwan reflects the government's clear intention to reach foreign bribery previously considered outside the reach of U.S. law enforcement.

Conclusion

The cases discussed above make clear that federal authorities have undertaken a concerted effort to curb foreign bribery schemes. The government appears to be signaling that foreign bribery with even a marginal connection to the U.S. is now fair game for pursuit under the FCPA or other arguably applicable statute.

Steven F. Reich ([email protected]), a member of this newsletter's Board of Editors, is co-chair of the Corporate Investigations & White Collar Defense practice group at Manatt, Phelps & Phillips, LLP.

Every time you turn around, the Justice Department or SEC announces a new round of charges and settlements against individuals and entities under the Foreign Corrupt Practices Act (FCPA). Historically, the government has focused FCPA enforcement efforts on persons or entities within the U.S., or on foreign persons or entities that commit unlawful acts within our borders. But, more recently, the government has employed conspiracy or aiding and abetting theories to reach acts of foreign bribery not previously thought to be within U.S. law enforcement's reach. This article examines recent charges and settlements suggesting a new approach by federal authorities to foreign bribery.

Background

Before turning to the cases, a little history is required.

Investigations by the Watergate Special Prosecutor and SEC during the 1970s revealed that numerous U.S. companies had bribed foreign officials while doing business abroad. As a result, Congress in 1977 enacted the FCPA to curb foreign bribery in two ways. First, with some notable exceptions not pertinent here, the FCPA prohibited bribes (or offers of bribes) to foreign officials by U.S. persons or entities doing business overseas. Second, the FCPA required companies whose stock is registered with the SEC (issuers) to establish accounting and financial controls aimed at preventing corrupt payments to foreign officials.

As originally enacted, the FCPA's anti-bribery provisions had limited reach. As noted, the statute applied only to “issuers,” i.e., to companies whose stock was registered with the SEC or that were required to file reports with the SEC, and also to “domestic concerns.” 15 U.S.C. ” 78dd-1, 78dd-2. An individual was a “domestic concern” only if he or she was a U.S. citizen, national or resident. 15 U.S.C. ' 78dd-2(h). An entity was a “domestic concern” only if its principal place of business was in the U.S. or if it was organized under the laws of a state of the U.S. Id. Thus, liability generally was limited to U.S. companies or individuals that made corrupt payments to foreign officials.

That changed with enactment of the International Bribery and Fair Competition Act of 1998. Among other things, that Act expanded the FCPA's reach to foreign companies and persons that directly or indirectly caused to occur within the U.S. an act in furtherance of a corrupt payment abroad. However, even after the 1998 amendment, if a party did not directly or indirectly cause such an act to occur within the U.S., the party was immune from FCPA liability. As a result, foreign nationals or companies (except those registered as issuers) whose unlawful acts occur entirely outside our borders have been thought to be outside the FCPA's reach.

Moreover, government efforts to broaden the FCPA's scope by charging exempt persons or entities with conspiring to violate the statute have been rejected by courts. In United States v. Castle , 925 F.2d 831, 836 (5th Cir. 1991), for example, the government charged two Canadian officials with conspiring to violate the FCPA after they agreed to accept bribes from a U.S. company. The U.S. Court of Appeals for the Fifth Circuit held that because foreign officials who receive bribes cannot be charged with primary violations of the FCPA, they also cannot be charged with conspiring to violate the statute. In short, because Congress had specifically excluded a class of alleged wrongdoers from the FCPA's reach, the Fifth Circuit concluded that the government could not use a conspiracy theory to reach them.

Notwithstanding this seemingly well-settled principle, several recent cases suggest that the government is becoming more aggressive in using conspiracy and aiding and abetting theories to bring enforcement actions against non-U.S. companies and persons whose core violations involve foreign bribery schemes.

U.S. v. Snamprogetti Netherlands B.V.

A notable recent example is U.S. v. Snamprogetti Netherlands B.V. , No. 10 Crim. 460 (S.D. Tex.). Snamprogetti, a Dutch corporation, was part of a joint venture that allegedly authorized bribes to Nigerian officials to obtain contracts to build liquefied natural gas facilities in that country. In July 2010, Snamprogetti and its current and former Italian parent companies entered into a deferred prosecution agreement with the Justice Department calling for a $240 million dollar fine. Snamprogetti separately agreed to pay $125 million in disgorgement to settle SEC charges.

Notably, the Justice Department did not allege that Snamprogetti committed a primary violation of the FCPA. Rather, Snamprogetti was alleged to have entered into a conspiracy with its joint venture partners and others to pay bribes through intermediaries and to have aided and abetted those same acts. The charging document in that case contained no allegations of direct conduct by Snamprogetti within the U.S. in furtherance of the alleged FCPA conspiracy. Instead, the government relied on allegations that Snamprogetti and its co-conspirators caused wire transfers to flow through bank accounts in New York, and that the company's alleged co-conspirators caused emails and faxes to be sent to other co-conspirators in Houston, all in furtherance of the alleged conspiracy.

Thus, to support its charges, the government appears to have attributed to Snamprogetti the conduct of its purported co-conspirators, notwithstanding the fact that the company's core bribery scheme appears to have had little or no connection to the U.S. While the government would likely argue that U.S. wire transfers made in support of the conspiracy provided a sufficient jurisdictional predicate to support FCPA liability, the case nevertheless can be seen as an incremental step toward the day when the acts of U.S.-based co-conspirators are attributed to foreign actors for FCPA purposes even when those acts were not “caused” by the foreign actor within the meaning of the FCPA.

SEC v. Panalpina

In November 2010, the SEC announced civil settlements with several companies in oil services industries, including Panalpina Inc., a global freight forwarding and logistics services company, for violating the FCPA. The SEC alleged that Panalpina, the U.S. subsidiary of a Swiss parent, bribed customs officials in more than 10 countries in exchange for various benefits, including preferential customs duties and import treatment for international freight shipments. Panalpina agreed to pay $11,329,369 in disgorgement to settle the charges. Panalpina and its Swiss parent also agreed to pay the Justice Department a criminal fine of $70.56 million.

While Panalpina, as a U.S.-based entity, clearly could have been (and was) charged with violations of the FCPA as a principal, the SEC's complaint is notable because it conceded that neither Panalpina nor its parent were issuers. Despite this, the complaint charged Panalpina with two counts of aiding and abetting FCPA violations by customers of the company that were issuers. According to a statement by an SEC official, this was the first time that the agency had charged a non-issuer with FCPA violations. Thus, Panalpina potentially represents an effort by the SEC to expand its focus beyond “issuers” through application of aiding and abetting or, potentially, conspiracy, theories of FCPA liability.

U.S. v. Siriwan

Another example of non-traditional anti-bribery enforcement is the Justice Department's indictment of a Thai public official, Juthamis Siriwan. See U.S. v. Siriwan , No. 09 Crim. 0081 (C.D. Cal.). In that case, the government alleged that the defendant, the former head of the Tourism Authority of Thailand, accepted bribes from two U.S. citizens who owned and operated several businesses in Southern California. In exchange, Siriwan allegedly secured several lucrative Thai contracts for her U.S. benefactors.

Siriwan was not charged with any FCPA violations because, as discussed already, foreign officials who do no more than receive bribes from a covered person or entity are beyond the reach of the statute. Instead, the Justice Department charged Siriwan under the federal money laundering statute, 18 U.S.C. ' 1956, on the theory that she had laundered money for the purpose of furthering the primary FCPA violations allegedly committed by her U.S. bribe-givers. In essence, rather than charging Siriwan with accepting a bribe, the government charged her with conspiring to transport the money used for the bribe.

To be sure, the government's theory was not entirely novel. In U.S. v. Bodmer , 342 F. Supp. 2d 176 (S.D.N.Y. 2004), Manhattan federal district Judge Shira Scheindlin rejected a defendant's motion to dismiss in similar circumstances, noting that “i[f] immunity from the FCPA's criminal penalties automatically conferred non-resident foreign nationals with immunity from the money laundering statute, these non-resident foreign nationals could openly serve as professional money launderers of proceeds derived from violations of the FCPA, without repercussion.” Id . at 191. Combined, however, with the kind of aggressive use of the FCPA reflected in the Snamprogetti and Panalpina cases, the charging theory in Siriwan reflects the government's clear intention to reach foreign bribery previously considered outside the reach of U.S. law enforcement.

Conclusion

The cases discussed above make clear that federal authorities have undertaken a concerted effort to curb foreign bribery schemes. The government appears to be signaling that foreign bribery with even a marginal connection to the U.S. is now fair game for pursuit under the FCPA or other arguably applicable statute.

Steven F. Reich ([email protected]), a member of this newsletter's Board of Editors, is co-chair of the Corporate Investigations & White Collar Defense practice group at Manatt, Phelps & Phillips, LLP.