One of the most notable aspects of the FCPA – especially for non-U.S. persons – is its broad extraterritorial reach. As described below, the jurisdiction of the FCPA extends to many actions that take place outside of the United States and that involve non-U.S. citizens and companies. In particular, FCPA enforcement officials have stated that they are prioritizing emerging markets.
The FCPA’s anti-bribery provisions establish jurisdiction over both natural and legal persons. If jurisdiction extends to a legal entity, it also extends to any officers, directors, employees, agents or stockholders acting on behalf of that entity, regardless of their nationality or residency.
FCPA jurisdiction is based on both nationality and territorial jurisdiction concepts. Nationality jurisdiction applies to U.S. persons and Issuers (defined below) acting anywhere in the world. Territorial jurisdiction applies to acts taken within the United States and can extend to persons who are neither Issuers nor U.S. persons.
A key concept for understanding FCPA jurisdiction is the use of “means of interstate commerce.” Under this concept, personal jurisdiction may be established by placing a telephone call to the United States, sending an email through a server located in the United States, or sending a wire transfer that goes through (however briefly) the U.S. banking system.
The accounting provisions apply only to “Issuers”, i.e., any company, U.S. or foreign, that is registered on a U.S. securities exchange or that files certain reports with the SEC. This includes foreign issuers with American Depositary Receipts traded on U.S. exchanges. These provisions do not apply to privately-held companies (but non-Issuers should consider complying with them, as they help manage the risk of violating the anti-bribery provisions.)
While these requirements are directed at “Issuers”, they also apply to subsidiaries and affiliates of Issuers covered by an Issuer’s consolidated reporting. Thus, an Issuer is responsible for ensuring that all of its majority-owned subsidiaries and affiliates – including foreign subsidiaries and joint ventures – comply with the accounting provisions.
Even if a parent company owns less than 50% of a subsidiary or affiliate, it is required to use “good faith efforts” to cause that entity to devise and maintain a system of internal controls that ensures transactions are executed in accordance with management’s authorization.
Aiding, Abetting and Conspiracy
While not specifically part of the FCPA, U.S. federal laws establish penalties for aiding and abetting violations of law, for conspiracy to violate the law, and for causing others to violate the law. When combined with the extraterritorial reach of the FCPA, these laws have significant implications for non-U.S. individuals and companies, since FCPA-related liability can be incurred by foreign persons or entities that take no acts in furtherance of the violation while in the territory of the United States (described here).
Under these theories, U.S. law enforcement may seek civil and/or criminal penalties against individuals and entities (regardless of whether they are in the United States or are U.S. persons) who:
- aid, abet, counsel, command, induce or procure the commission of an FCPA violation by another party (i.e., aiding and abetting);
- knowingly or recklessly provide substantial assistance to a violator of the FCPA (also aiding and abetting);
- agree with another party to commit an FCPA violation (i.e., conspiracy); or
- cause an issuer to violate the accounting provisions.
Enforcement officials may also hold U.S. companies liable for the actions of their foreign subsidiaries in cases where the subsidiary acts as an agent of the parent company. Determinations of whether a subsidiary is an agent of a parent company revolve around whether the parent controls the subsidiary – a determination based on both the legal and practical relationship between the companies.
Foreign subsidiaries can also create liability for themselves under agency principles. Even if the subsidiary is not otherwise subject to the FCPA, if it commits a violation while acting as an agent of the parent company, the subsidiary can be prosecuted.
The same is true of third parties – a foreign sales agent that pays a bribe on behalf of a U.S. company can be prosecuted in the United States, even if the bribe had no other connection to the United States.
Companies can also be prosecuted for bribes paid on their behalf by third parties if they authorize the payments or know that a corrupt payment will be made. More importantly, companies can be held liable if they should have known – i.e., if they “consciously disregard” a “high probability” that a corrupt payment will be made on their behalf by a third party.
The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.