The Expanding Reach of United States Law: Extraterritorial Enforcement of U.S. Law, International Enforcement and Compliance Obligations of International Business

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The Expanding Reach of United States Law
Extraterritorial Enforcement of U.S. Law,
International Enforcement and Compliance
Obligations of International Business

• Baach Robinson Lewis PLLC
• Washington New York London
• August 2007

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Introduction

• Impact of September 11, 2001 on reach of U.S.
  criminal law
• American criminal law has expanded to cover
  activity with only tenuous United States
  contacts.
• Aggressive theories of prosecution have extended
  the application of existing law enforcement tools
  in new directions.
• Mutual Legal Assistance Treaties (MLATs) and
  other agreements have increased the ability of
  U.S. and foreign prosecutors to enforce criminal
  law and to exchange information freely.

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Introduction

• Recent developments enhance the power of U.S.
  prosecutors to target, investigate and prosecute
  foreign individuals, commercial entities, and
  financial institutions.
• These developments also enhance the ability of
  foreign authorities to use U.S. investigative
  proceedings and information-gathering resources
  in conducting their own investigations. U.S.
  discovery is broad and intrusive.
• It is essential that foreign companies and
  nationals understand the expanded reach of U.S.
  law.

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Introduction

• Foreign Corrupt Practices Act (FCPA)
• Anti-Money Laundering and USAPatriot Act 319
• Office of Foreign Assets Control (OFAC)
• Mutual Legal Assistance Treaties (MLATs)
• Other International Accords
• United Nations
• Organization of American States
• Organization for Economic Cooperation and
  Development

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Introduction
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FCPA

• There is a new emphasis on FCPA enforcement and
  particularly its expansion to foreign persons and
  entities. Under the FCPA
• It is unlawful for a person or entity with a
  minimal nexus to the U.S. to make a corrupt
  payment to a foreign official for the purpose of
  obtaining business for or with any person.
• Jurisdiction requires a nexus with the U.S.,
  which can now be satisfied by an automatic entry
  into an electronic database or an electronic
  pulse through the U.S. payments system.
• Extended to apply to foreign firms and persons
  that act in furtherance of a corrupt payment
  while in the U.S.

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FCPA

• New legislation since September 11, 2001 expands
  U.S. jurisdiction for FCPA violations to foreign
  persons who make illegal payments outside the
  U.S. that have a detrimental effect within the
  U.S.
• Includes passing illicit money through U.S.
  financial systems.
• Foreign persons and entities can also be charged
  with money laundering or conspiracy.

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FCPA

• Five Elements of a FCPA Violation
• Who is making the payment?
• Was that persons intent corrupt?
• Was a payment made, offered, promised, or
  authorized?
• Is the recipient directly or indirectly a foreign
  official?
• Was the payment made to facilitate a business
  purpose?

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FCPA

• Applies to foreign companies and nationals that
  cause, directly or through agents, an act in
  furtherance of a corrupt payment that takes place
  within the U.S. or has a detrimental effect in
  the U.S.
• The payment must be intended to induce the
  recipient to misuse his official position to
  direct business to the payer or another person.
• Act does not have to succeed the offer of a
  payment alone violates the statute.
• U.S. parents may be liable for acts of foreign
  subsidiaries.
• Foreign subsidiaries subject to recordkeeping
  provisions.
• Liability for misrecording transactions.

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FCPA

• What is Permitted?
• Payments to facilitate or expedite routine
  governmental actions.
• Examples obtain permits or licenses, process
  visas or work orders, provide police protection
  or utilities.
• Payments that are legal in that country.
• Payments that are part of performing a
  contractual obligation.

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FCPA

• FCPA in Practice Case of Guido Alejandro
  Antonini Wilson
• Potential Bases of Jurisdiction
• U.S. Nationality
• Use of Antoninis U.S. companies
• Use of U.S. bank accounts
• Should corrupt purpose exist then Antonini may be
  subject to FCPA prosecution.
• Other individuals involved could also be subject
  to FCPA prosecution as a result of U.S. nexus
  through Antonini.

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FCPA

• Sanctions
• Criminal Fines of up to 100,000 and
  imprisonment for up to five years or a fine of
  twice the benefit the defendant sought to obtain
  by making the corrupt payment.
• Civil Fines of up to 10,000, plus possible
  additional fines ranging from 50,000 to
  500,000, or the gain defendant would have earned
  as a result of the payment.
• Parallel enforcement by SEC.
• Private cause of action brought by unsuccessful
  competitors actions under the Racketeer
  Influenced and Corrupt Organization (RICO) Act
  or other federal or state laws.
• Some recent settlements have been in the 40
  million range.

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FCPA

• What to Do?
• Critical to have compliance and training program
  in place.
• Audit and oversight.
• Need to consider early cooperation if
  investigation begins.

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Anti-Money Laundering and USAPatriot Act 319

• Traditional Anti-Money Laundering Statutes
  Approaches
• Can be used to prosecute any transaction in which
  the illegal source or use of funds is disguised
  or misrepresented.
• Includes financial fraud as well as trying to
  hide proceeds of crime.
• USAPatriot Act 319
• Requires U.S. banks to respond to the request of
  regulatory authorities, the Department of
  Justice, and the Department of the Treasury for
  anti-money laundering records.
• Requests may include information concerning
  foreign deposits, including deposits at foreign
  branches or subsidiaries in other currencies.

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Anti-Money Laundering and USAPatriot Act 319

• Deposits into foreign banks are considered
  deposits into any bank account the bank may have
  in the U.S.
• Restraining orders and warrants for seizure
  related to overseas money laundering deposits can
  be made against funds held in the U.S.
  institution even if the depositor has no funds in
  the U.S., the funds are not in dollars and there
  is no crime committed in the country of deposit.
• Foreign banks that maintain U.S. correspondent
  accounts must designate an agent to receive U.S.
  subpoenas. Subpoenas may request information
  concerning any bank transaction, account or
  customer.
• Illustration Suspected Money Launderer X
  deposits 10,000 Euros into Bavarian Landesbank in
  Munich. Bavarian Landesbank has dollar
  correspondent account with Deutsche Bank NY. US
  Government can seize equivalent amount in dollars
  from DB NY.

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Office of Foreign Assets Control (OFAC)

• The Treasury Departments Office of Foreign
  Assets Control administers and enforces economic
  sanctions programs primarily against countries
  and groups of individuals, such as terrorists and
  narcotics traffickers.
• May include individuals or entities (Specially
  Designated Nationals) within countries not on
  OFAC list.
• Prohibited transactions
• Trade or financial transactions and other
  dealings in which U.S. persons may not engage
  unless authorized by OFAC or expressly exempted
  by statute.
• Who is responsible for OFAC compliance?
• U.S. and foreign offices of U.S. banks.
• U.S. branches of foreign banks.

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Office of Foreign Assets Control (OFAC)

• Responsibilities of financial institutions
• Must monitor all financial transactions performed
  by or through them to detect those that involve
  any entity or person subject to the OFAC laws and
  regulations.
• Generally, a financial institution should accept
  deposits and funds subject to OFAC regulations,
  but freeze the funds and accounts, so that no
  funds can be withdrawn (this is called
  blocking).
• Responsible banks use OFAC filtering software
  to ensure that proposed wires will not run into
  such problems. Foreign financial institutions
  without U.S. branches run liability risks if they
  do not screen transactions with OFAC filtering
  software.

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Office of Foreign Assets Control (OFAC)

• OFAC in Practice - Hypothetical
• Company A, an Argentine company, instructs its
  bank, Local Bank, to wire 1 million to a
  Nigerian suppliers bank account at First Nigeria
  Bank. Local Bank instructs its correspondent in
  New York to make the payment to First Nigerias
  correspondent bank.
• The New York correspondent bank blocks/freezes
  the transaction because while Nigeria may not be
  an OFAC blocked country, First Nigeria Bank is an
  SDN under the sanctions against Zimbabwe because
  it is believed that First Nigeria Bank is a front
  for the Zimbabwean government.

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Office of Foreign Assets Control (OFAC)

• OFAC in Practice - Hypothetical contd
• While Company A is being threatened with a
  lawsuit for failure to comply with its contract
  with its Nigerian supplier, the funds may remain
  frozen as long as First Nigeria is designated as
  an SDN.
• This will remain so despite the fact that there
  is no allegation that the Argentine company,
  Nigeria, or the Nigerian supplier are in any way
  involved in illicit activity.
• The New York correspondent bank often is
  prohibited from advising Company As bank that
  the wire transfer will meet with OFAC problems.

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Office of Foreign Assets Control (OFAC)

• If any of the following countries or their
  instrumentalities appear in your transaction then
  you may have OFAC exposure
• The Balkans
• Belarus
• Burma
• Cote d'Ivoire (Ivory Coast)
• Cuba
• Democratic Republic of the Congo
• Iran
• Iraq
• Liberia
• North Korea
• Sudan
• Syria
• Zimbabwe
• Additionally, there are thousands of entities
  unrelated to these nations that can trigger OFAC
  exposure.

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Mutual Legal Assistance Treaties (MLATs)

• MLATs, mutual legal assistance treaties, are
  binding international obligations between two
  countries that allow a country to request legal
  assistance related to criminal investigations
  from another country.
• MLATs are increasingly being utilized as
  governments focus on transnational judicial
  cooperation.
• MLATs entitle the requesting state to assistance
  in
• Acquiring bank records and financial information,
• Questioning witnesses and taking statements,
• Obtaining copies of government records,
• Serving documents, and
• Conducting searches and seizures.
• MLATs are not the exclusive tools for U.S.
  assistance. Governmental and non-governmental
  parties can use 28 U.S.C. 1782 to obtain
  assistance from U.S. courts, including documents
  and testimony. The documents and testimony
  available may be broader than what would be
  obtainable by the requesting party in its home
  judicial system.

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MLATs

• MLAT between the U.S. and Brazil was ratified
  October 21, 1998.
• Includes assistance for proceedings related to
  immobilization and forfeiture of assets.
• Recognizes the particular importance of money
  laundering.
• MLAT between the U.S. and Argentina was ratified
  July 2, 1992.
• Includes assistance in immobilizing assets and
  the forfeiture of assets related to an offense
  located in the other Partys territory.
• There is no MLAT between the U.S. and Chile,
  however said countries can assist one another via
  other cooperating agreements
• Chile Free Trade Agreement covers requests for
  information between parties regarding trade
  transactions and violations.
• Memorandum of Understanding between the U.S.
  Securities and Exchange Commission and the
  Superintendencia de Valores y Seguros of Chile
  allows the exchange of mutual assistance to
  enforce laws and regulations applicable to the
  securities markets and conduct investigations or
  prosecutions in cases where information is
  located in the other countrys jurisdiction.

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MLATs

• Local Authorities MLATs
• While U.S. state and local authorities are not
  parties to MLATs or other international
  agreements, foreign authorities have received
  investigative cooperation from local authorities
  through their use of grand jury subpoenas.
• Scope of subpoena power is extensive.
• For example, an offshore bank with an affiliate
  in New York may share a computer server and
  therefore the offshore banks deposit records may
  be subject to a New York grand jury subpoena
  regardless of the offshore nations bank secrecy
  laws.
• U.S. Courts relatively unlikely to uphold
  objections based on foreign bank secrecy.

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United Nations

• United Nations Convention against Corruption
• Applies to the prevention, investigation and
  prosecution of corruption and to the freezing,
  seizure, confiscation, and return of the proceeds
  of such offenses.
• Allows parties to request assistance in the form
  of evidence, searches and seizures, and the
  recovery of assets to facilitate investigations,
  prosecutions, and judicial proceedings.
• Entered into force December 14, 2005.
• Ratified by Argentina on August 28, 2006 Brazil
  on June 15, 2005 Chile on September 13, 2006
  U.S. on October 30, 2006.

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United Nations

• United Nations Convention against Transnational
  Organized Crime
• Applies to the prevention, investigation and
  prosecution of transnational organized crime, or
  serious offenses (punishable by at least four
  years imprisonment) committed in more than one
  State by an organized group of three or more
  persons.
• Allows parties to request assistance in the form
  of evidence, searches and seizures, and the
  recovery of assets to facilitate investigations,
  prosecutions, and judicial proceedings.
• Entered into force September 29, 2003.
• Ratified by Argentina on November 19, 2002
  Brazil on January 29, 2004 Chile on November 29,
  2004 U.S. on November 3, 2005.

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OAS

• Organization of American States Inter-American
  Convention Against Corruption
• Allows parties to request evidence or other
  necessary action to assist in the facilitation of
  legal proceedings regarding investigations or
  prosecutions of corruption.
• Requires national statutes similar to FCPA
  criminalizing bribery.
• Provides for extradition.
• Requires access to bank records.
• Entered into force March 6, 1997.
• Ratified by Argentina on October 9, 1997 Brazil
  on July 24, 2002 Chile on October 27, 1998 U.S.
  on September 29, 2000.

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OAS

• Organization of American States Inter-American
  Convention on Mutual Assistance in Criminal
  Matters
• Parties provide one another mutual assistance in
  investigations, prosecutions and proceedings that
  pertain to crimes over which the requesting state
  has jurisdiction.
• Scope includes immobilizing and sequestering
  property, freezing assets, carrying out searches
  or seizures, and transmitting documents,
  information, and evidence.
• Entered into force April 14, 1996.
• Ratified by Argentina December 12, 2006 Chile
  April 28, 2004 U.S. May 25, 2001. It was signed
  by Brazil, but not yet ratified.

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OECD

• Organization for Economic Cooperation and
  Development Convention on Combating Bribery of
  Foreign Public Officials in International
  Business Transactions.
• Similar requirements to U.S. statutes.
• Legal basis for extradition.
• Requires cooperation among the parties in
  investigating possible violations of national
  laws.
• Signed in December, 1997.
• Implemented by Argentina, Brazil, Chile and U.S.,
  among others.

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Examples of the New Approach

• A Czech businessman who had U.S. investors was
  indicted for bribing Azeri officials in a
  privatization scheme. His Swiss lawyer was
  charged and pleaded guilty to money laundering.
• Criminal charges included FCPA violations.
• Only nexus to U.S. was the presence of the U.S.
  investors neither the businessman nor the
  lawyer are U.S. nationals or residents and none
  of the criminal acts occurred in the U.S.
• Baach Robinson Lewis is representing a
  defrauded investor in a related action.

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Examples of the New Approach

• Baach Robinson Lewis recently represented a
  South American public official who allegedly
  utilized public funds in a political election.
• Indictment brought by local New York City
  officials because the money had been wired by a
  third party through New York City on its way to
  financial institutions in Europe.
• The tenuous nexus between the activity with the
  U.S. demonstrates the potential scope of U.S.
  enforcement.
• Local authorities, such as the New York District
  Attorney, have their own fraud and anti-money
  laundering statutes that can also be the source
  of prosecution.
• Such prosecution can result in attempted
  extradition and include Interpol red notices
  precluding travel worldwide.

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Examples of the New Approach

• Baach Robinson Lewis recently represented
  another South American public figure accused of
  corruption within a South American country.
• Individual allegedly had bank accounts within a
  Bahamian affiliate of a bank with offices in New
  York.
• While U.S. authorities had no interest in
  prosecuting this individual, N.Y. District
  Attorney used a grand jury subpoena to obtain
  bank records from the New York office of the bank
  relating to offshore accounts. N.Y. District
  Attorney then provided the records obtained to
  local investigators.
• Local investigators also obtained related banking
  records through use of an MLAT.

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Conclusions

• Records and information believed to be beyond the
  view of the law may not be secret.
• Strategies for response should include compliance
  programs and if problems are identified early
  consideration of contact with relevant State
  Department, Department of Justice, and/or local
  officials.
• Response strategies may include potential
  challenges to the transnational cooperation in
  all jurisdictions, especially if U.S. is used to
  obtain documents from a third country or the U.S.
  is used to prosecute claims that would not be
  tenable in home country.

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