The long-arm of US anti-bribery and corruption laws – are you subject to US jurisdiction?


Financier Worldwide Magazine

February 2015 Issue

February 2015 Issue

It was widely announced on 22 December 2014 that French power and transportation conglomerate Alstom SA had agreed to plead guilty to violating the US Foreign Corrupt Practices Act (FCPA). In addition, four corporate executives of Alstom have been charged with related offences, a Swiss subsidiary of Alstom pleaded guilty to conspiring to violate the Act, and two American subsidiaries entered deferred prosecution agreements, admitting to conspiring to violate the Act. Furthermore a British subsidiary and two employees have also been charged, by the Serious Fraud Office in the UK, with bribery offences under the UK Bribery Act for alleged matters arising from payments in Lithuania. The relevant scheme was described by the DOJ as being “both concocted and concealed” by the French parent, which then not only failed to report the conduct, but also refused to cooperate with the US investigation for several years, until after its executives were publicly charged, and of whom three of four have now also pleaded guilty. Indeed, authorities elaborated that the conduct was “brazen”, “rampant” and “flagrant”, and was admitted to have been sustained over more than 10 years, spanning several continents.

Alstom has agreed to pay $772m in criminal penalties, a figure which, if approved at final sentencing next June, will be the highest ever penalty in the US for foreign bribery offences pursued by the DOJ. All of this is despite the fact that Alstom is a French company, and that the bribes were paid in countries outside the United States, including Egypt, Indonesia and Saudi Arabia.

The Alstom matter provides a clear, if somewhat colourful, illustration of the long reach of US FCPA investigations and jurisdiction regarding bribery and related offences. Surprisingly little nexus to the US is needed for prosecution to occur, and even less for an investigation. This is so for many non-US entities, including those that are not so ‘brazen’, and that may consider themselves beyond such reach. It is telling that, in his remarks about the Alstom agreement, US Deputy Attorney General James Cole said: “ is both my expectation, and my intention, that the comprehensive resolution we are announcing today will send an unmistakable message to other companies around the world: that this Department of Justice will be relentless in rooting out and punishing corruption to the fullest extent of the law, no matter how sweeping its scale or how daunting its prosecution. Let me be very clear: corruption has no place in the global marketplace. And today’s resolution signals that the United States will continue to play a leading role in its eradication.”

Of course, most countries now have strict anti-bribery and corruption laws addressing bribery of foreign public officials. Some relevant examples include the US FCPA, the Bribery Act 2010 in the United Kingdom and the Criminal Code Act 1995 (Cth) (Criminal Code) in Australia.

Let’s take a brief, closer look at the relevant provisions of the US FCPA. These are extremely broad, and are roughly divided into anti-bribery provisions and accounting provisions. A person or organisation will contravene the anti-bribery provisions of the FCPA where they have made, or offered or promised to make, a payment or provided, or offered or promised, anything else of value to a foreign official for the purposes of influencing the foreign official in order to obtain a business advantage. ‘Foreign officials’ may include virtually anyone who may be seen as an instrument or agent of any part of government, authority or government-owned enterprise. Conduct through any number or type of intermediaries will also constitute an offence, as will ‘wilful blindness’ or even indifference. The accounting provisions require accuracy of books and records as well as adequate measures to prevent bribery and corruption.

In addition to the cost of any investigation, resulting damage to reputation and potential loss of business (including through blacklisting), penalties are criminal and can be very high. Individuals contravening the accounting provisions may be subject to not more than 20 years’ imprisonment and $5m in fines per offence. Bribery offences may also lead to imprisonment and fines of up to $250,000 or twice the pecuniary loss or gain resulting from the corrupt payment under the Alternative Fines Act. Companies face penalties of up to $25m for the accounting provisions or $2m for the bribery provisions, or twice the pecuniary loss or gain resulting from the corrupt payment. Other civil penalties and disgorgement may also apply.

While anti-bribery provisions are stringent in many jurisdictions, the rigorousness and success of enforcement activity between jurisdictions varies markedly. Indeed, it is becoming trite to say that the US leads the world in such enforcement activity by a very large margin, with the DOJ and the SEC taking a coordinated and extremely active approach to prosecuting individuals and corporations for foreign bribery, corruption, and related offences. It has also very effectively used deferred and non-prosecution agreements to achieve results (tools not so readily available elsewhere).

In stark contrast, Australia’s enforcement efforts have been lacking, and it has been openly and firmly criticised by the OECD for its poor record. While Australia has stepped up dedication of enforcement resources and has recently prioritised investigation and enforcement of anti-bribery provisions, including foreign bribery provisions, reform is still needed and it is likely to take some time before significant results are achieved. Across the globe, in the UK, the world-leading and much heralded UK Bribery Act, which took effect in 2011, has led to just one conviction so far, in December 2014. On the other hand a number of other jurisdictions have seen a flurry of activity and some very public prosecutions. Notably, many jurisdictions across Asia-Pacific, such as China and Indonesia, have seen heightened focus on stamping out corruption, but still see ongoing high levels of corruption.

It is hardly surprising, then, that many Australian and other non-US companies are complacent about compliance, many not even bothering with compliance programs at all, never mind the rigorous compliance programs needed to meaningfully minimise liability risk. Such complacency is ill-advised and often based on a lack of understanding of the increased activity of home regulators, of the potential long jurisdictional reach of foreign regulators, such as those in the US, or of the magnitude of the risk, potential harm and loss caused by even an investigation, much less a prosecution. It is also often based on a lack of understanding of the value of a good compliance program and compliance culture – not just in prevention of illegal activity but in defending the company in the event necessary.

For present purposes, we will focus on the risk of US FCPA jurisdiction. First, many generally lack a real understanding of the quite minimal level of contact with the US needed to trigger US FCPA jurisdiction, or at least an investigation. It has been asserted (and investigations launched on less) that only use of US banks and wires or email servers, even by a subsidiary, in some way (sometimes tangentially) touching the relevant conduct will trigger jurisdiction.

Further, one little-known basis for US jurisdiction over foreign entities is the issuance of American Depository Receipts (ADRs). Many non-US companies issue ADRs for raising capital, and this potentially makes them ‘issuers’ subject to US anti-bribery and corruption provisions. More specifically, the FCPA treats non-US companies as ‘issuers’ when they have to register securities with the SEC pursuant to section 12 of the Securities and Exchange Act 1934 (SEC Act), or where they must file reports under section 15(d) of the SEC Act. Because non-US issuers of Level II and Level III ADRs must register under section 12 of the SEC Act, they are ‘issuers’ and so are subject to FCPA anti-bribery and corruption provisions. This may come as a surprise to many Australian, UK and other non-US companies, which use Level II or III ADRs and believe they are not subject to such US jurisdiction or laws.

There is little doubt that the DOJ and SEC consider that US jurisdiction can reach far and wide – there are also judicial decisions supporting a broad interpretation of such jurisdiction. For example, in SEC vs. Straub et al., No. 11-civ-9645 (SDNY, Feb 8, 2013) (Straub), there was an investigation into a Hungarian telecommunications company and ADR issuer. The investigation led to allegations that the company violated the FCPA by bribing Macedonian government officials in an attempt to stop changes that would have exposed it to significant competition.

Although the company settled with the SEC and the DOJ, the SEC subsequently filed a complaint against three of the company’s executives, alleging that they had assisted the company to violate the FCPA anti-bribery provisions, and represented to the company’s auditors that the company’s records were accurate and that they had no knowledge of any unlawful conduct. The executives opposed the complaint, including on the ground that because the relevant conduct occurred outside the US and was directed towards non-US officials, the conduct did not constitute the sort of ‘minimum contact’ needed for the court to have jurisdiction over them.

However, the court found that the conduct was enough to justify jurisdiction, and that the company’s status as an ADR issuer should have made the executives realise that SEC filings rendered false or misleading by their statements would be given to potential US securities’ purchasers. As a result, the executives’ conduct “was designed to violate US securities regulations and so was necessarily directed toward the US, even if not principally directed there”. The Straub holding regarding jurisdiction is essentially in line with the broad jurisdictional views of the DOJ, the SEC, and various prior outcomes endorsed by courts and indeed often negotiated by companies.

Some of the more prominent relevant examples of such an approach include those involving two other French companies: telecommunications company Alcatel CIT and engineering and construction company Technip S.A. In 2008, the former deputy vice president of Latin America for Alcatel was sentenced to 30 months prison after pleading guilty to charges under the FCPA relating to $2.5m in payments made to a Costa Rican public official to obtain lucrative contracts. In related proceedings in 2010, Alcatel and three of its subsidiaries agreed to pay $92m to resolve an FCPA investigation into violations of FCPA anti-bribery provisions, and more.

Also in 2010, Technip entered a deferred prosecution agreement with the DOJ, agreeing to pay a $240m criminal penalty regarding an alleged bribery scheme to secure contracts for the Bonny Island LNG plant in Nigeria. The firm also settled an SEC civil complaint by paying $98m in disgorgement of profits.

Be warned. The US DOJ and SEC will continue to be active and aggressive in enforcing the FCPA anti-bribery and accounting provisions. For many companies, the greatest risk of investigation and prosecution for anti-bribery or corruption offences will hail from the US. Is your company, or an associated entity, potentially subject to the FCPA? Even if a company is firmly convinced that no such liability risk exists for it, the company should appreciate that it may become ensnared in an investigation of another entity’s conduct, an individual within the company might be subject to jurisdiction, or its home jurisdiction may continue the trend to more aggressively investigate and prosecute. These are the trends, and the risks are growing in every jurisdiction. There has never been a better time to implement or improve rigorous compliance, and get serious about the need for a true compliance culture.


Annette Hughes is a partner and Joshua Levy is a lawyer at Corrs Chambers Westgarth. Ms Hughes can be contacted on +61 3 9672 3506 or by email:

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