May 15, 2015

US v. Vassiliev: Some Foreign Bribery Beyond US Reach

Arnold & Porter Advisory

Whether you are a foreign company with little or no connection to the United States, or a US parent company with subsidiaries throughout the world, you have likely been following with concern the US government's expansive view of its jurisdiction under the US Foreign Corrupt Practices Act (FCPA) as well as other US laws.  A recent decision limiting the reach of US anti-bribery laws, not including the FCPA, confirms that the courts will reign in expansive enforcement efforts if extraterritoriality requirements for jurisdiction are lacking.  The court in U.S. v. Vassiliev1 held that it did not have jurisdiction over allegations related to a foreign bribery scheme occurring in Canada and executed by individuals having no ties to the United States.  In dismissing the indictment, the court criticized the government for attempting to prosecute alleged criminal activity having virtually no contact to the United States, save connection to a partially US-supported United Nations agency.2

In 2014, the US Department of Justice (DOJ) brought charges against the three defendants for honest services wire fraud and bribery offenses.3 Defendant Mauricio Siciliano, a Venezuelan national, was employed by the International Civil Aviation Organization (ICAO), a United Nations Specialized Agency in Canada.4 The indictment alleged that the United States has been a member of ICAO since 1944, and that the United States contributed approximately 25 percent of the ICAO's annual budget between 2005 and 2010.5  Siciliano worked in the Machine Readable Travel Documents Programme, a department that promulgated standards and best practices for machine-readable passports and travel documents.6  Siciliano lived and worked in Montreal.7  Defendants Alexander Vassiliev and Yuri Sidorenko were both citizens of Ukraine and St. Kitts and Nevis, and Sidorenko was also a citizen of Switzerland.8  Both men resided primarily in Dubai during the relevant period of time and were chairmen of a Ukrainian conglomerate known as the EDAPS Consortium (EDAPS), which manufacturers passports, driver's licenses, and other security-protected documents.9 

The indictment alleged that Vassiliev and Sidorenko provided money and other things of value to Siciliano in exchange for his help promoting EDAPS to his business contacts through ICAO.10  The indictment alleged that, among other things, Siciliano introduced Vassiliev and Sidorenko to various contacts at governmental and non-governmental entities who were involved in travel document security, including endorsing EDAPS to the Organization for Security and Cooperation in Europe (which the indictment described as an "inter-governmental organization charged with coordinating security among member states") and INTERPOL (which the indictment noted was at the time seeking to produce an e-passport).11  In exchange for his help promoting EDAPS, the indictment alleged that Siciliano requested and received payments, and that his son went to work for Vassiliev and Sidorenko in Dubai.12 

According to the Court, the crime itself had no nexus to the United States.  Judge Breyer noted that "[a]ll of this conduct occurred outside of the United States between three defendants who are not United States citizens, who never worked in the United States, and whose use of wires did not reach or pass through the United States."13  While the indictment, alleging a scheme in a foreign country to bribe an employee of a public international organization to obtain a business advantage, would appear to sound under the FCPA, the alleged crime -- as charged -- did not contain the jurisdictional hooks that the FCPA requires (e.g. committed by a US entity or citizen, or a foreign issuing company traded in the US, or a foreign entity or person who engaged in an act in furtherance while in the United States).  In particular, there does not appear to have been much if any attempt by the government to argue that any acts in furtherance of the bribes were taken while in the territory of the United States, and the Court noted that this case involved "wholly foreign conduct and wholly foreign actors."14  Instead, the government chose to charge honest services fraud, soliciting and giving bribes involving a federal program, and related conspiracy charges, as well as aiding and abetting offenses -- none of which contain extraterritoriality clauses.  To support jurisdiction, the government alleged that the matter affected the United States by potentially touching its financial and national security interests.15

Judge Breyer noted that none of the government's relied-upon bribery provisions actually contained clear language indicating that they should be applied extraterritorially.  Accordingly, quoting Morrison v. National Australia Bank, Ltd.16, the Supreme Court's pronouncement on construing extraterritoriality, Judge Breyer found that "[w]hen a statute gives no clear indication of an extraterritorial application, it has none."17 

Judge Breyer also distinguished a line of cases employing extraterritorial application of statutes based on "the right of the government to defend itself against obstruction, or fraud wherever perpetrated, especially if committed by its own citizens, officers, or agents."18  As Judge Breyer pointed out, "no aim to harm the United States is alleged anywhere in this Indictment."19 The court found that US contributions to the ICAO did not confer the ability to regulate "wholly foreign" conduct and actors, especially when, as here, there was "no allegation that even one dollar of the millions of dollars the United States presumably sent to the ICAO was squandered."20  The court held that to rule otherwise would extend the government's ability to prosecute a crime affecting any program, anywhere in the world, "so long as the foreign governments or organizations receive at least $10,000 in federal funding." 21 Concluded the court: "This is not sound foreign policy, it is not a wise use of scarce federal resources, and it is not, in the Court's view, the law."22

The impact this ruling will have on FCPA (and other foreign-based) prosecutions is difficult to predict, but a single district court order -- however strongly worded -- seems unlikely to dampen the DOJ and SEC's enthusiasm for bringing suit against foreign individuals.  Unlike the statutes at issue in Vassiliev, the FCPA has a clear extraterritorial mandate.  Historically, the government has adopted a broad interpretation of the FCPA's territorial jurisdiction provisions to enforce that mandate.  So long as the government can allege certain ties to the United States, related either to the entity accused or the place of offending activity, the government will assert that the FCPA confers jurisdiction.  The government maintains that issuers (both US and foreign-based who trade in the US), US citizens, nationals, residents, and entities, can be subject to a court's jurisdiction for any use of interstate commerce in furtherance of an FCPA breach, including "placing a telephone call or sending an email, text message, or fax from, to, or through the United States," or a party's availing itself of the US banking system.23  Likewise, the DOJ has successfully asserted that even brief contact with the United States can establish jurisdiction over foreign parties, for example, by a defendant transferring money through US banks as part of a corrupt scheme without setting foot in the US (U.S. v. JCG) 24 or storing emails on US servers, even if the defendant was unaware he was doing so (U.S. v. Magyar Telekom; SEC v. Straub).25

It is important to note, however, that the JGC and Magyar Telekom cases were both settled before indictment.  Possibly because the vast majority of entities prosecuted under the FCPA settle, there are few cases that have pushed the courts on the limits of the FCPA's jurisdictional reach.  When such cases have arisen, they have not been consistent.  In U.S. v. Patel, for example, the D.C. District Court found insufficient jurisdictional ties where the defendant -- a UK national and managing director of a non-issuing UK company -- simply mailed an allegedly corrupt purchase agreement from the UK to the United States.26  According to the court in Patel, for such an individual, the act must occur "while in the territory of the United States," for territorial jurisdiction to attach.27  In contrast, the District Court for the Southern District of New York, in SEC v. Straub, concluded that emails in furtherance of a bribery scheme routed through or stored on network servers in the US are sufficient for the government to plead the FCPA's jurisdictional predicate.28  The same court, however, found in SEC v. Sharef, just two weeks later, that the defendant's participation in a telephone call originating in the US, urging co-defendants to follow through with the corrupt plan, was not sufficient for jurisdictional purposes.29

Buried in its filings, the government in Vassiliev alleged the same FCPA jurisdictional hook the court found sufficient in Straub: defendants' emails passing through US servers. The FBI Affidavit In Support of Criminal Complaint in Vassiliev alleged that "at least thirty of the e-mail exchanges relevant to the bribery scheme discussed above passed through the Google server '' which is located in the Northern District of California."30  In light of Straub, it is possible that the US Attorney's Office hoped the court would see the matching jurisdictional basis of the emails as sufficient.  But, if Judge Breyer saw it, he ignored it.31  The failure of the government to emphasize the location of the email servers -- the Indictment contains no jurisdictional allegations, for example -- suggests a belief on the government's part that it was not sufficient.  And, indeed, it likely would not have been.  Central to the court's finding a cognizable FCPA claim in Straub was the government's allegation of a foreign bribery scheme which directly affected US interests: In the course of the scheme, the government alleged, defendants had provided falsified information to their company's auditors which, in turn, was incorporated into the company's public filings in the United States, thereby affecting the company's investor profile on the New York stock exchange.32  Their emails, the judge concluded, were part of that scheme.33 In Vassiliev, Judge Breyer concluded that the alleged bribery scheme did not affect US interests sufficiently to establish an offense under US law in the first place.  Therefore use of any interstate instrumentality (e.g. emails) to accomplish the scheme likely became a moot issue.

The ruling in Vassiliev provides additional comfort that courts will be willing to question the reach of US criminal law, at least where there was virtually no US connection to the corrupt activity or actors, but the DOJ has already appealed the dismissal and appears unlikely to reconsider its broad approach to extraterritorial jurisdiction under anticorruption statutes.34  Today's transnational technology often will run communications through US-based servers at some point, and case law seems to provide a path for prosecutors to continue to argue that emails and telephone calls establish jurisdiction, especially with clearly alleged FCPA violations.  Companies should expect continued aggressive prosecution where even fleeting US ties exist. 

  1. US v. Sidorenko, Vassiliev, and Siciliano, No. 3:14-cr-00341, Order, (N.D. Ca. April 21, 2015) ("Order").

  2. See generally, id., Transcript of Proceedings, April 17, 2015.

  3. See id, Indictment (June 26, 2014), (Dkt. Entry No. 3) ("Indictment").

  4. ¶ 8.

  5. See Indictment at ¶¶ 1, 3.

  6. See id.; available here.

  7. See Indictment at ¶ 8.

  8. See Indictment at ¶¶ 6, 7.

  9. See id.; available here.

  10. Indictment at, e.g., ¶10.

  11. Indictment at ¶11.

  12. Indictment at ¶¶17-20; see also Order at 3.

  13. Order at 3.

  14. Id. at 9-10.

  15. Id. at 12.

  16. Morrison v. National Australia Bank, Ltd., 561 US 247, 254 (2010).

  17. Order at 4.

  18. US v. Bowman, 260 US 94 (1922).

  19. Order at 12.

  20. Id. at 10.

  21.  Id.

  22. Id.

  23. US Department of Justice & US Securities & Exchange Commission, A Resource Guide to the US Foreign Corrupt Practices Act, at 11 (November 14, 2012).

  24. US v. JSCG Corp., 11-cr-00260, Information ¶¶ 20(e), 22 (S.D. Tex. April 6, 2011).

  25. US v. Magyar Telekom, Plc., No 1:11CR00597, Information ¶¶ 2, 24, 26(c), 47 (E.D. Va. December 29, 2011); see also US v. Straub, 11-cv-09645 (S.D.N.Y., February 8, 2013).

  26. US v. Patel, No. 1:09-cr-0335, Trial Tr. 5:11-14, 7:17-8:2 (D.D.C. June 6, 2011).

  27. Id. at 11:7-9, 29:12-13.

  28. US v. Straub, 11-cv-09645, Order at 17 (S.D.N.Y., February 8, 2013).

  29. SEC v. Sharef, No. 11-CV-09073 (S.D.N.Y. February 19, 2013).

  30. In the Criminal Complaint itself, the government alleged that defendants "would and did transmit and cause to be transmitted by means of wire communications in interstate and foreign commerce…foreign email communications and interstate and foreign wire transfers" and that "co-conspirators committed the following overt act, among others, in the Northern District of California…," which included sending "an email message to SICILIANO, which traveled through the Northern District of California."  See US v. Sidorenko, Vassiliev, and Siciliano, No. 3:14-cr-00341, Criminal Complaint (N.D. Ca. May 28, 2014).

  31. Order at 3 ("All of the (alleged) conduct occurred outside of the United States between three defendants…whose use of wires did not reach or pass through the United States.").

  32. US v. Straub, 11-cv-09645, Order at 9 (S.D.N.Y., February 8, 2013) ("Therefore, it is not only that Magyar traded securities through ADRs listed on the NYSE that satisfies the minimum contacts standard but also that Defendants allegedly engaged in a cover-up through their statements to Magyar's auditors knowing that the company traded ADRs on an American exchange, and that prospective purchasers would likely be influenced by any false financial statements and filings."

  33. Id.

  34. US v. Sidorenko, Vassiliev, and Siciliano, No. 3:14-cr-00341, Notice of Appeal,  (April 17, 2015) (Dkt. Entry No. 50).

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