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The uncertain extraterritorial reach of the FCPA
The uncertain extraterritorial reach of the FCPA
22 July 2019
Series
Blogs
22 July 2019
On June 21, 2019, a federal district court judge in the Seventh Circuit denied Ukrainian businessman Dmitry Firtash and Hungarian businessman Andras Knopp’s motion to dismiss federal bribery charges. In doing so, the court explicitly declined to follow the Second Circuit’s decision in U.S. v. Hoskins, which rejected the U.S. government’s attempt to use conspiracy and accomplice liability to reach conduct by a non-U.S. person that occurred outside the United States.
Firtash and Knopp were indicted along with four other co-defendants in 2013 on charges of conspiracy to violate the Foreign Corrupt Practices Act (the “FCPA”), which criminalizes the payment of money by a “domestic concern” to a “foreign official” for the purposes of influencing an official act. The defendants were alleged to have conspired to pay $18.5 million in bribes to Indian government officials to obtain titanium mining rights, which the U.S. Department of Justice (“DOJ”) alleged they intended to sell to an unnamed Chicago-based aerospace company, subsequently identified in press reports as Boeing (though Boeing has not been charged with any wrongdoing). The majority of the alleged criminal conduct occurred outside the United States, though certain other co-conspirators were alleged to have attended meetings in the United States, and United States financial institutions were allegedly used to transfer several million dollars of bribe payments before they reached Indian public officials.
In May 2017, Firtash and Knopp moved to dismiss the indictment, relying in part on Hoskins. They argued that the DOJ lacked jurisdiction over them as they were foreign nationals who had never set foot in the United States. In Hoskins, the U.S. Court of Appeals for the Second Circuit found jurisdiction lacking in similar circumstances, holding that a foreign national could not be liable as an accomplice or conspirator under the FCPA if the foreign national could not otherwise be liable as a principal. In other words, the proper exercise of jurisdiction over a foreign national located abroad charged with violating the FCPA requires a showing that the foreign national took some action in furtherance of the violation while in the United States or otherwise acted as an employee, officer, or agent of a U.S. entity in furtherance of the violation. In reaching that decision, the Second Circuit relied on the text of the FCPA, Supreme Court and Second Circuit precedent regarding conspiracy theory liability, the FCPA’s legislative history and purpose, and the presumption against extraterritoriality.
In her decision denying Firtash and Knopp’s motion to dismiss (available here), Judge Rebecca R Pallmeyer rejected the jurisdictional standard set forth in Hoskins.* In doing so, she noted that the Seventh Circuit would likely refuse to apply Hoskins based on its prior decisions interpreting other criminal statutes, noting that “although the Seventh Circuit has not yet ruled on this precise question, its disagreement with the Second Circuit’s approach in Hoskins is evident.” Unlike the Second Circuit, the Seventh Circuit has frequently declined to use legislative history when interpreting criminal statutes, relying instead solely on the text of the relevant statute in determining who is subject to it. Applying that standard, the judge found that, although Firtash and Knopp never set foot in the United States, they were subject to jurisdiction wherever “the charged [FCPA] conspiracy was intended to have an effect” – in this case, the Northern District of Illinois (which covers Chicago).
This decision underscores the unsettled nature of the law concerning the extraterritorial application of the FCPA. Following Hoskins, the U.S. government’s ability to use conspiracy and accomplice liability to reach non-U.S. conduct by non-U.S. persons appeared, at least potentially, to have been curtailed. It remains to be seen whether other courts will follow Hoskins but it now appears possible, if not likely, that the issue of the extraterritorial application of the FCPA will result in a split among the U.S. Courts of Appeals. Given how infrequently courts have occasion to adjudicate the FCPA, as most companies subject to FCPA allegations elect to settle with the government rather than risk an adverse determination on the merits, substantial uncertainty regarding the FCPA’s jurisdictional reach is likely to remain.
*As background for readers who may be unfamiliar with the United States court system, the federal intermediate appellate courts are divided into thirteen separate courts of appeals, or circuit courts. Decisions issued by the circuit courts are only binding on the federal district courts in that circuit. The Second Circuit covers New York, Connecticut and Vermont, whereas the Seventh Circuit covers Illinois, Indiana, and Wisconsin.