SDNY Favors the SEC in Foreign Corrupt Practices Act Action Involving Novel Issues of Statutory Interpretation

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In a case addressing an issue of first impression involving the Foreign Corrupt Practices Act (FCPA), the US District Court for the Southern District of New York adopted an expansive interpretation of the statute’s interstate commerce requirement to allow the imposition of liability on foreign nationals for bribery occurring in a foreign country with only unintentional conduct in the United States. The Securities and Exchange Commission also benefited from a second ruling tolling the statute of limitations until the defendants were physically present in the United States.

This enforcement action was brought by the SEC in December 2011 against executives of a Hungarian telecommunications company (together, Defendants), alleging that in 2005 they bribed Macedonian government officials in order to gain beneficial treatment for Defendants’ company, which was SEC-registered and traded American depositary receipts on a US exchange during the relevant period. The SEC alleged that Defendants concealed their scheme and executed falsified certifications to the auditors and made false sub-representations for quarterly reports filed with the SEC.

The District Court rejected the argument that the SEC failed to allege Defendants’ “use of United States interstate commerce” in furtherance of the bribery scheme, as required by the FCPA. The only conduct alleged to reach the United States was the email transmittal of “sham” contracts used to conceal the bribes. The emails were sent between individuals outside the United States, but were allegedly routed or stored on network servers in the United States. Defendants argued that such conduct was insufficient because they did not purposely intend their emails to be routed through the United States. Conceding that the statute was ambiguous, the District Court nevertheless held, based on legislative history and interpretations of criminal statutes with similar provisions, that the FCPA does not require a showing of intent to use the means of instrumentalities, only that those instrumentalities had in fact been used.

In addition, the District Court found that the SEC’s claims were timely under the applicable five (5)-year statute of limitations contained in 28 U.S.C. § 2462. While it was undisputed that the SEC filed its complaint more than five years after both the alleged misconduct and the company’s disclosure to the SEC of an internal investigation into that conduct, the District Court agreed that, under the plain language of the limitations statute, “an offender must be physically present in the United States for the statute of limitations to run.” Despite the availability to the SEC of worldwide service of process, the District Court held that the SEC had no obligation to serve the Defendants outside of the United States as the limitations period was not running when Defendants were not within the United States.

SEC v. Straub, et al., No. 11 Civ. 9645 (RJS) (S.D.N.Y. February 8, 2013).

 

Topics:  Bribery, Email, FCPA, Foreign Nationals, Interstate Commerce, SEC, SEC v Straub, Statute of Limitations, Tolling

Published In: Civil Procedure Updates, Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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