Disentangling the Growing FCPA Web


Enacted in 1977, the Foreign Corrupt Practices Act (“FCPA”) prohibits the bribing of foreign officials for the purposes of obtaining or retaining business.  The FCPA has an extremely broad reach, allowing the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) to bring claims against any publicly-traded companies and their officers, directors, employees, stockholders, and agents for committing prohibited conduct anywhere in the world.  The term “agents” further expands the reach of the FCPA, including within its purview, third-party agents, consultants, distributors, joint-venture partners, and others.

The number of new FCPA cases initiated by the DOJ and the SEC declined in 2012, with only 27 total cases in 2012.  Despite the decrease in initiated cases, FCPA enforcement remains a stated priority for both the DOJ and the SEC as evinced by the more than 150 open FCPA investigations. Accordingly, multinational companies must ensure that their compliance programs are up to par.

In order to help companies understand how to comply with the FCPA, the SEC and the DOJ released a resource guide with detailed information about their FCPA enforcement approach and priorities.  This resource guide, along with the U.S. District Court for the Southern District of New York’s recent denial of a motion to dismiss in SEC v. Straub, illustrates both the extent of the FCPA’s reach and how multinational companies should ensure compliance.

SEC v. Straub stems from charges brought by the SEC in December 2011 against three executives of Magyar Telekom (a Hungarian telecommunications company), alleging that these individuals implemented a plan to bribe Macedonian officials in 2005 and 2006 in order to bar the entry of a competitor to Magyar’s Macedonian telecommunications subsidiaries and to gain other benefits.  In their motion to dismiss, the defendants claimed that, because their only direct contact with the United States was a series of emails routed through and stored on U.S. computer servers, the court lacked personal jurisdiction.  On February 8, 2013, U.S. District Court Judge Richard Sullivan of the Southern District of New York ruled against the defendants, allowing the SEC to go forward with charges against the executives for violations of the FCPA.

In rejecting Magyar’s motion to dismiss, Judge Sullivan made specific reference to the regular quarterly and annual consolidated filings made by defendants in the United States as a result of having publicly traded securities on the NYSE via American Depository Receipts (“ADRs”). Accordingly, Judge Sullivan held that the three executives had reason to know that such financial reports would be given to prospective American purchasers and would thereby be sufficient to confer jurisdiction.

The decision in Magyar Telekom reiterates that jurisdictional grounds will not protect non-U.S. employees of foreign companies from FCPA enforcement where employee conduct is in any way involved with or directed toward the United States.  This decision, combined with guidance provided by the DOJ/SEC resource guide in determining the priorities in FCPA cases, should clarify the more controversial aspects of the government’s FCPA enforcement approach.


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Fordham Journal of Corporate & Financial Law