The FCPA and Personal Jurisdiction over Foreign Nationals Residing Outside The U.S.

The SEC alleged that, in connection with the tender for the identity card project and then Siemens AG's efforts to obtain compensation from the Argentine government in arbitration before the World Bank's International Center for the Settlement of Investment Disputes (ICSID), Siemens AG paid roughly $100 million in bribes ' more than $31 million of which was allegedly paid after Siemens AG became an issuer in 2001 ' to win the tender and then to conceal the original bribery from the ICSID tribunal. Although the SEC alleged that Steffen had “longstanding connections in Argentina, which he acquired during his tenure at Siemens-Argentina,” as found by Judge Scheindlin, the alleged misconduct by Steffen took place during or after his tenure as Group President at STS.

Parsing the allegations of the complaint, Judge Scheindlin noted that Steffen had allegedly been “recruited 'to facilitate the payment of bribes,'” and participated, starting in 2000 after the contract had been awarded and then cancelled, in “negotiating with the Argentine government, including with the newly elected president, which demanded that Siemens pay it bribes in order to reinstate the contract.”

Judge Scheindlin noted that the SEC alleged that Steffen met with the CFO of another Siemens AG division, Siemens Business Services (SBS), and “pressured” the SBS CFO, including after Siemens AG became an issuer, to effect the bribery scheme; the SEC also alleged that Steffen told the SBS CFO, during the period in which Siemens AG was subject to the FCPA, “that SBS had a 'moral duty' to make at least an 'advance payment' of ten million dollars to the individuals who had previously handled the bribes because he and other individuals were being threatened as a result of the unpaid bribes.”

Judge Scheindlin concluded, however, that subsequent to when the SBS CFO allegedly authorized the bribes, “the allegations against Steffen are limited to participation in a phone call initiated by [a then Siemens AG Managing Board member] from the United States in connection with the bribery scheme,” as well as another effort by Steffen, and other defendants, in the first half of 2003 to “urge” the then Managing Board member “to meet the demands [of Argentine officials] and make the additional payments.” Although the SBS CFO allegedly authorized certain payments thereafter, Judge Scheindlin noted that this occurred only after the SBS CFO sought “additional guidance from 'superiors' including Siemens' Head of Compliance, Chief Financial Officer, Chief Executive Officer, and two members of the Managing Board, including [the defendant Managing Board member], whose responses [the SBS CFO] 'understood ' to be instructions that he authorize the bribe payments.'”

The SEC's complaint, Judge Scheindlin found, alleged that the SBS CFO had made false statements and material omissions in Sarbanes-Oxley certifications. In summarizing the SEC's allegations against Steffen, Judge Scheindlin stressed Steffen's lack of alleged role with respect to the alleged books and records and internal control violations and the misconduct at SBS:

While Steffen's actions may have been a proximate cause of the false filings ' and even that is a matter of some doubt ' Steffen's actions are far too attenuated from the resulting harm to establish minimum contacts. Steffen was brought into the alleged scheme based solely on his connections with Argentine officials. In furtherance of his negotiations with those officials, Steffen “urged” and “pressured” [the SBS CFO] to make certain bribes. However, [the SBS CFO] did not agree to make the bribes until he communicated with several “higher ups” whose responses he perceived to be instructions to make the bribes. Once [the SBS CFO] agreed to make the bribes-following receipt of instructions from Siemens' management rather than Steffen[,] Steffen's alleged role was tangential at best. Steffen did not actually authorize the bribes. The SEC does not allege that he directed, ordered or even had awareness of the cover ups that occurred at SBS much less that he had any involvement in the falsification of SEC filings in furtherance of those cover ups. Nor is it alleged that his position as Group President of Siemens Transportation Systems would have made him aware of, let alone involved in falsification of these filings.

Steffen, 2013 WL 603135 at *4.

Judge Scheindlin stated, as well, that “it is not even clear that Steffen's actions were a proximate cause of the bribes being made, given [the SBS CFO's] perceived need for approval … ” Id. at *6 n.62.

Citing Judge Sullivan's decision in Straub with approval, and addressing the SEC's argument that jurisdiction lies over “an executive of a foreign securities issuer, wherever located, [who] participates in a fraud directed to deceiving United States shareholders,” Judge Scheindlin held that “the exercise of jurisdiction over foreign defendants based on the effect of their conduct on SEC filings is in need of a limiting principle.” Id. at *5. Thus, “[i]f this Court were to hold that Steffen's support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.” Id.

Judge Scheindlin continued, “Absent any alleged role in the cover ups themselves, let alone any role in preparing false financial statements the exercise of jurisdiction here exceeds the limits of due process, as articulated by the Supreme Court and the Second Circuit.” Id. The judge then buttressed her ruling on “minimum contacts” by holding that “Steffen's lack of geographic ties to the United States, his age, his poor proficiency in English, and the forum's diminished interest in adjudicating the matter [following the settlements of corporate actions against Siemens AG and Siemens-Argentina], all weigh against personal jurisdiction” under the requirement of “reasonableness.” Id. at *6.

Judge Scheindlin thus directed the complaint against Steffen be dismissed, finding no need to reach Steffen's alternative argument that the SEC's 2011 action against him was untimely.

Conclusion

The due process analysis adopted by the court in Straub and Steffen, and particularly the latter's holding focusing on the impact of alleged individual misconduct on the alleged bribery-related falsity of financial statements filed with the SEC, and more generally on the alleged proximate role, vel non, a defendant plays with respect to primary anti-bribery charges, will likely give rise to renewed attention on personal jurisdiction as a defense to FCPA actions in civil cases, if not criminal cases as well. (Although due process challenges to personal jurisdiction in the criminal arena are governed not by the International Shoe “minimum contacts” and “reasonableness” tests, but instead by the requirement of a sufficient U.S. nexus, defined in a manner that is “neither arbitrary nor unfair,” the tests can significantly overlap. See United States v. Angulo-Hernandez, 576 F.3d 59, 60 (Toruella, J., dissenting from the denial of en banc review) (citing cases from the First and Ninth Circuits).)

But while the court's effort in Steffen to distinguish Straub and similar cases on their facts, and the Steffen decision's emphasis on the role of SEC filings in the due process calculus, do not ignore entirely the alleged role of the defendant with regard to primary anti-bribery matters, its jurisdictional approach is in tension with decisions that broadly construe the SEC's and the Department of Justice's (DOJ's) ability to prosecute aiding and abetting (as well as, in the case of the DOJ, conspiracy).

Indeed, only last fall, the U.S. Court of Appeals for the Second Circuit rejected arguments that the SEC's statutory authority to prosecute aiders and abettors required proof that the defendant “proximately caused” the primary violator's misconduct. SEC v. Apuzzo, 689 F.3d 209 (2d Cir. 2012). That decision, however, did not arise in the context of extraterritorial application, or in the context of a personal jurisdiction challenge, and it is likely that only further appellate guidance will be able to settle whether Steffen's reasoning can be said to have legs that go beyond the unique alleged facts there at hand.

More broadly, the ruling in Steffen and the general analysis in Straub, with its focus on SEC filings and their accuracy, raise questions of how the DOJ could assert and sustain personal jurisdiction against non-citizen employees and agents in suits under 15 U.S.C. ' 78dd-2. That provision of the FCPA does not depend on SEC financial statement nexus.' The two rulings raise similar questions regarding the viability of the aider and abettor and conspiracy liability theories the DOJ has enunciated as applicable to those who aid, abet, or conspire with primary violators of the “in-the-territory” anti-bribery provisions of the FCPA set forth at 15 U.S.C. ' 78dd-3, regardless where those alleged aiders and abettors or co-conspirators reside. (See U.S. Dep't of Justice & U.S. Sec. and Exch. Comm'n, “A Resource Guide to the U.S. Foreign Corrupt Practices Act” at 34-35 (Nov. 14, 2012), http://1.usa.gov/14X1UQS).

Indeed, in this vein, a focus on SEC-related statements in the jurisdictional calculus might well be argued to construe the United States' interests under the “protective” theory of jurisdiction too narrowly, leaving on the judicial cutting room floor one of the important original purposes of the FCPA: the desire to reward U.S. (as well as other) businesses that conduct business honestly and transparently.

Finally, by focusing on financial statements as the lynchpin of the personal jurisdiction analysis, the two Southern District decisions could well lead SEC investigators to focus even more intently on securing evidence relating to individuals' roles in certifying an issuer's books and records as reasonably accurate, and its internal controls as adequate. That scenario raises the question of whether resources are better spent on such jurisdictional discovery as opposed to identifying primary anti-bribery violators and FCPA remediation.

Beyond the fact that, at some point, federal courts are prepared to refuse to entertain civil FCPA charges against foreign individuals with no or little physical contact with the United States, the important news coming from the recent Southern District decisions is not necessarily the SEC's loss in Steffen, but its victory in Straub. The teaching of the latter, if it is upheld, is that a foreign defendant who loses on personal jurisdiction could be liable in perpetuity based on a single e-mail that happens to pass through a U.S. server. That result is one that is likely to remain controversial until the appellate courts or Congress address that issue definitively.

Bruce E. Yannett and Andrew M. Levine are partners, and Steven S. Michaels is a counsel, in the New York office of Debevoise & Plimpton LLP. Scott Auby is a
counsel in the firm's Washington DC, office. The authors may be reached at [email protected], [email protected], [email protected], and [email protected].

In last month's issue we discussed one of two recent decisions in which U.S. District Court judges considered this question: When may foreign nationals residing continuously outside the United States be prosecuted on civil Foreign Corrupt Practices Act (FCPA) charges by the Securities and Exchange Commission (SEC), taking into account the due process “fair play and substantial justice” requirements of International Shoe v. Washington , 326 U.S. 310 (1945)? The two judges ' Judge Richard J. Sullivan in SEC v. Straub, 11-CV-9645 (RJS), 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013), and Judge Shira A. Scheindlin in SEC v. Steffen, 11-CV-9073 (SAS), 2013 WL 603135 (S.D.N.Y. Feb. 19, 2013) ' came to very different conclusions on the issue. We turn now to the Steffen case.

The Decision in Steffen

The SEC's complaint in the Steffen matter alleged that, in connection with a tender that was awarded and then canceled by the government of Argentina for the design and production of a national identity card, Herbert Steffen, a former Chief Executive Officer of Siemens Argentina S.A. (Siemens-Argentina), and later a Group President of Siemens Transportations Systems (STS), a division of Siemens AG, along with six other former senior executives at Siemens AG, violated or aided and abetted Siemens AG's violations of the primary anti-bribery provisions of 15 U.S.C. ' 78dd-1, as well as the books-and-records and internal-controls provisions of the FCPA set forth at 15 U.S.C. ' 78m(b)(2)(A) and (B), as well as (b)(5). Steffen, 11-CV-9073, Complaint (S.D.N.Y. Dec. 13, 2011).

The SEC alleged that, in connection with the tender for the identity card project and then Siemens AG's efforts to obtain compensation from the Argentine government in arbitration before the World Bank's International Center for the Settlement of Investment Disputes (ICSID), Siemens AG paid roughly $100 million in bribes ' more than $31 million of which was allegedly paid after Siemens AG became an issuer in 2001 ' to win the tender and then to conceal the original bribery from the ICSID tribunal. Although the SEC alleged that Steffen had “longstanding connections in Argentina, which he acquired during his tenure at Siemens-Argentina,” as found by Judge Scheindlin, the alleged misconduct by Steffen took place during or after his tenure as Group President at STS.

Parsing the allegations of the complaint, Judge Scheindlin noted that Steffen had allegedly been “recruited 'to facilitate the payment of bribes,'” and participated, starting in 2000 after the contract had been awarded and then cancelled, in “negotiating with the Argentine government, including with the newly elected president, which demanded that Siemens pay it bribes in order to reinstate the contract.”

Judge Scheindlin noted that the SEC alleged that Steffen met with the CFO of another Siemens AG division, Siemens Business Services (SBS), and “pressured” the SBS CFO, including after Siemens AG became an issuer, to effect the bribery scheme; the SEC also alleged that Steffen told the SBS CFO, during the period in which Siemens AG was subject to the FCPA, “that SBS had a 'moral duty' to make at least an 'advance payment' of ten million dollars to the individuals who had previously handled the bribes because he and other individuals were being threatened as a result of the unpaid bribes.”

Judge Scheindlin concluded, however, that subsequent to when the SBS CFO allegedly authorized the bribes, “the allegations against Steffen are limited to participation in a phone call initiated by [a then Siemens AG Managing Board member] from the United States in connection with the bribery scheme,” as well as another effort by Steffen, and other defendants, in the first half of 2003 to “urge” the then Managing Board member “to meet the demands [of Argentine officials] and make the additional payments.” Although the SBS CFO allegedly authorized certain payments thereafter, Judge Scheindlin noted that this occurred only after the SBS CFO sought “additional guidance from 'superiors' including Siemens' Head of Compliance, Chief Financial Officer, Chief Executive Officer, and two members of the Managing Board, including [the defendant Managing Board member], whose responses [the SBS CFO] 'understood ' to be instructions that he authorize the bribe payments.'”

The SEC's complaint, Judge Scheindlin found, alleged that the SBS CFO had made false statements and material omissions in Sarbanes-Oxley certifications. In summarizing the SEC's allegations against Steffen, Judge Scheindlin stressed Steffen's lack of alleged role with respect to the alleged books and records and internal control violations and the misconduct at SBS:

While Steffen's actions may have been a proximate cause of the false filings ' and even that is a matter of some doubt ' Steffen's actions are far too attenuated from the resulting harm to establish minimum contacts. Steffen was brought into the alleged scheme based solely on his connections with Argentine officials. In furtherance of his negotiations with those officials, Steffen “urged” and “pressured” [the SBS CFO] to make certain bribes. However, [the SBS CFO] did not agree to make the bribes until he communicated with several “higher ups” whose responses he perceived to be instructions to make the bribes. Once [the SBS CFO] agreed to make the bribes-following receipt of instructions from Siemens' management rather than Steffen[,] Steffen's alleged role was tangential at best. Steffen did not actually authorize the bribes. The SEC does not allege that he directed, ordered or even had awareness of the cover ups that occurred at SBS much less that he had any involvement in the falsification of SEC filings in furtherance of those cover ups. Nor is it alleged that his position as Group President of Siemens Transportation Systems would have made him aware of, let alone involved in falsification of these filings.

Steffen, 2013 WL 603135 at *4.

Judge Scheindlin stated, as well, that “it is not even clear that Steffen's actions were a proximate cause of the bribes being made, given [the SBS CFO's] perceived need for approval … ” Id. at *6 n.62.

Citing Judge Sullivan's decision in Straub with approval, and addressing the SEC's argument that jurisdiction lies over “an executive of a foreign securities issuer, wherever located, [who] participates in a fraud directed to deceiving United States shareholders,” Judge Scheindlin held that “the exercise of jurisdiction over foreign defendants based on the effect of their conduct on SEC filings is in need of a limiting principle.” Id. at *5. Thus, “[i]f this Court were to hold that Steffen's support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless.” Id.

Judge Scheindlin continued, “Absent any alleged role in the cover ups themselves, let alone any role in preparing false financial statements the exercise of jurisdiction here exceeds the limits of due process, as articulated by the Supreme Court and the Second Circuit.” Id. The judge then buttressed her ruling on “minimum contacts” by holding that “Steffen's lack of geographic ties to the United States, his age, his poor proficiency in English, and the forum's diminished interest in adjudicating the matter [following the settlements of corporate actions against Siemens AG and Siemens-Argentina], all weigh against personal jurisdiction” under the requirement of “reasonableness.” Id. at *6.

Judge Scheindlin thus directed the complaint against Steffen be dismissed, finding no need to reach Steffen's alternative argument that the SEC's 2011 action against him was untimely.

Conclusion

The due process analysis adopted by the court in Straub and Steffen, and particularly the latter's holding focusing on the impact of alleged individual misconduct on the alleged bribery-related falsity of financial statements filed with the SEC, and more generally on the alleged proximate role, vel non, a defendant plays with respect to primary anti-bribery charges, will likely give rise to renewed attention on personal jurisdiction as a defense to FCPA actions in civil cases, if not criminal cases as well. (Although due process challenges to personal jurisdiction in the criminal arena are governed not by the International Shoe “minimum contacts” and “reasonableness” tests, but instead by the requirement of a sufficient U.S. nexus, defined in a manner that is “neither arbitrary nor unfair,” the tests can significantly overlap. See United States v. Angulo-Hernandez , 576 F.3d 59, 60 (Toruella, J., dissenting from the denial of en banc review) (citing cases from the First and Ninth Circuits).)

But while the court's effort in Steffen to distinguish Straub and similar cases on their facts, and the Steffen decision's emphasis on the role of SEC filings in the due process calculus, do not ignore entirely the alleged role of the defendant with regard to primary anti-bribery matters, its jurisdictional approach is in tension with decisions that broadly construe the SEC's and the Department of Justice's (DOJ's) ability to prosecute aiding and abetting (as well as, in the case of the DOJ, conspiracy).

Indeed, only last fall, the U.S. Court of Appeals for the Second Circuit rejected arguments that the SEC's statutory authority to prosecute aiders and abettors required proof that the defendant “proximately caused” the primary violator's misconduct. SEC v. Apuzzo , 689 F.3d 209 (2d Cir. 2012). That decision, however, did not arise in the context of extraterritorial application, or in the context of a personal jurisdiction challenge, and it is likely that only further appellate guidance will be able to settle whether Steffen's reasoning can be said to have legs that go beyond the unique alleged facts there at hand.

More broadly, the ruling in Steffen and the general analysis in Straub, with its focus on SEC filings and their accuracy, raise questions of how the DOJ could assert and sustain personal jurisdiction against non-citizen employees and agents in suits under 15 U.S.C. ' 78dd-2. That provision of the FCPA does not depend on SEC financial statement nexus.' The two rulings raise similar questions regarding the viability of the aider and abettor and conspiracy liability theories the DOJ has enunciated as applicable to those who aid, abet, or conspire with primary violators of the “in-the-territory” anti-bribery provisions of the FCPA set forth at 15 U.S.C. ' 78dd-3, regardless where those alleged aiders and abettors or co-conspirators reside. (See U.S. Dep't of Justice & U.S. Sec. and Exch. Comm'n, “A Resource Guide to the U.S. Foreign Corrupt Practices Act” at 34-35 (Nov. 14, 2012), http://1.usa.gov/14X1UQS).

Indeed, in this vein, a focus on SEC-related statements in the jurisdictional calculus might well be argued to construe the United States' interests under the “protective” theory of jurisdiction too narrowly, leaving on the judicial cutting room floor one of the important original purposes of the FCPA: the desire to reward U.S. (as well as other) businesses that conduct business honestly and transparently.

Finally, by focusing on financial statements as the lynchpin of the personal jurisdiction analysis, the two Southern District decisions could well lead SEC investigators to focus even more intently on securing evidence relating to individuals' roles in certifying an issuer's books and records as reasonably accurate, and its internal controls as adequate. That scenario raises the question of whether resources are better spent on such jurisdictional discovery as opposed to identifying primary anti-bribery violators and FCPA remediation.

Beyond the fact that, at some point, federal courts are prepared to refuse to entertain civil FCPA charges against foreign individuals with no or little physical contact with the United States, the important news coming from the recent Southern District decisions is not necessarily the SEC's loss in Steffen, but its victory in Straub. The teaching of the latter, if it is upheld, is that a foreign defendant who loses on personal jurisdiction could be liable in perpetuity based on a single e-mail that happens to pass through a U.S. server. That result is one that is likely to remain controversial until the appellate courts or Congress address that issue definitively.

Bruce E. Yannett and Andrew M. Levine are partners, and Steven S. Michaels is a counsel, in the New York office of Debevoise & Plimpton LLP. Scott Auby is a
counsel in the firm's Washington DC, office. The authors may be reached at [email protected], [email protected], [email protected], and [email protected].