Kiobel Insta-Symposium: The Impact of Kiobel on FCPA Enforcement

[Mike Koehler is an Assistant Professor of Law at Southern Illinois University School of Law and the author of the FCPA Professor website. This contribution is cross-posted on Professor Koehler’s site.]

Yesterday, the Supreme Court released its long-awaited opinion in Kiobel v. Royal Dutch Shell Petroleum.

The precise issue before the court was “whether and under what circumstances courts may recognize a cause of action under the Alien Tort Statute (“ATS”), for violations of the law of nations occurring within the territory of a sovereign other than the United States.”

The opinion, authored by Chief Justice Roberts, holds that “the presumption against exterritoriality applies to claims under the ATS, and that nothing in the statute rebuts that presumption.”

Accordingly, the court in a unanimous opinion (several justices authored concurring opinions) affirmed the Second Circuit’s dismissal of a lawsuit brought by a group of Nigerian nationals residing in the United States who filed suit in federal court against certain Dutch, British, and Nigerian corporations, alleging that the corporations aided and abetted the Nigerian government in committing violations of the law of nations in Nigeria.

This post analyzes the impact of Kiobel on FCPA enforcement.

While the ATS and Foreign Corrupt Practices Act are separated by 188 years in terms of enactment, the statutes have often being viewed by some as siblings, or at least distant cousins within the same family.

However, it is important to grasp that the ATS and FCPA are very different statutes in very material ways.

The jurisdictional issue the Supreme Court addressed in Kiobel – whether the canon of statutory interpretation known as the presumption against extraterritorial application – was necessitated because the ATS was silent on the jurisdiction issue. Indeed, Chief Justice Roberts stated that the canon “provides that when a statute gives no clear indication of an extraterritorial application it has none” (emphasis added).

In contrast, the FCPA is explicit as to its jurisdictional scope and provides as follows depending on the category of person (legal or natural) subject to the law’s anti-bribery provisions.

As to U.S. persons (legal or natural) the FCPA provides for two types of jurisdictional. The original statutory standard was (and is still part of the law) “use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance” of a bribery scheme. However, in 1998 Congress amended the FCPA to also provide for so-called nationality jurisdiction as to U.S. persons. 15 USC 78dd-1(g) and 78dd-2(i) specifically state, in pertinent part, as follows:

It shall also be unlawful for [any issuer organized under the laws of the United States or for any United States person] to corruptly do any act outside the United States in furtherance [of a bribery scheme] irrespective of whether such [U.S. person] makes uses of the mails or any means or instrumentality of interstate commerce in furtherance [of the bribery scheme].

In short, as to U.S. persons, in 1998 Congress explicitly amended the FCPA to provide for extraterritorial jurisdiction thus negating the need for reference to the canon of statutory interpretation at issue in Kiobel. As to foreign issuers subject to 78dd-1 of the FCPA (i.e. foreign companies with shares registered on U.S. exchanges or otherwise required to file periodic reports with the SEC), the 1998 amendment found in 78dd-1(g) did not apply to such companies. It can thus be inferred that Congress did not intend for the extraterritorial provisions of the 1998 amendments to apply to such entities. Here again, the need for the canon of statutory interpretation at issue in Kiobel is negated. For such foreign issuers, the FCPA explicitly provides only territorial jurisdiction as stated above.

As to persons other than U.S. persons (legal or natural) or foreign issuers, the FCPA was also amended in 1998 to create an entire new category of “person” subject to the FCPA’s anti-bribery provisions. See 78dd-3. This category applies to non-U.S. actors and non-foreign issuers such as foreign private companies and foreign nationals. This FCPA prong has explicit jurisdictional provisions. 78dd-3(a) states, in pertinent part, that it shall be unlawful for “any person” other than an issuer or domestic concern (that is a U.S. “person”) ”while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance [of a bribery scheme.” Here again, because the FCPA is explicit, the need for the canon of statutory interpretation at issue in Kiobel is negated.

Just because the canon of statutory interpretation at issue in Kiobel is not directly applicable to the FCPA, it does not follow that Kiobel will not have an impact on FCPA enforcement. To the contrary, the logic and rationale of many justices in Kiobel has direct bearing on certain aspects of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of certain aspects of FCPA enforcement.

Despite the above jurisdictional provisions clearly set forth in the FCPA, in recent years the DOJ has advanced broad jurisdictional theories in enforcement actions against foreign entities and foreign nationals.

For instance in 2006, the DOJ brought its first criminal FCPA enforcement action a foreign company, Norway-based Statoil (see here for the information), for engaging in a bribery scheme in Iran. The sole jurisdictional allegation the DOJ hung its hat on was the notion that Statoil received an invoice from a U.K. consulting company instructing that money “be routed through a U.S. bank account in New York to a bank account in Switzerland” which the company paid.

In announcing this action, which resulted in $21 million flowing into the U.S. Treasury, the DOJ stated (here) as follows.

Although Statoil is a foreign issuer, the FCPA applies to foreign and domestic public companies alike, where the companies stock trades on American exchanges. This prosecution demonstrates the [DOJ’s] commitment vigorously to enforce the FCPA against all international businesses whose conduct falls within its scope.

Many similar DOJ enforcement actions against foreign companies have been brought since. In fact, the majority of cases in the FCPA’s “Top Ten” in terms of fine and penalty amounts are against foreign companies including the Bonny Island, Nigeria enforcement actions in which the DOJ (and SEC) alleged that Dutch, French, and Japanese companies bribed Nigerian foreign officials. The jurisdictional allegations in these cases, which resulted in approximately $1.1 billion flowing into the U.S. Treasury, all hinged on wire transfers through New York based accounts and faxes and e-mails to the U.S. FCPA enforcement against foreign companies has been so prominent as to gain the attention of main-stream media such as the New York Times in this story.

In short, while the above FCPA enforcement actions against foreign actors (and several other examples could also be cited) did not rely on extraterritorial jurisdiction – because indeed there is none under the FCPA as to foreign actors – they did rely on what I’ve called de facto extraterritorial jurisdiction given the scant connection the bribery schemes had to the U.S.

It is here where the logic and rationale of many justices in Kiobel has direct bearing on this aspect of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of this aspect of FCPA enforcement.

For starters, Chief Justice Roberts recognized the delicate foreign policy consequences of the issue before the court – an issue that is present when the U.S. government alleges that foreign companies are bribing foreign officials on foreign lands.

It was also refreshing to see Chief Justice Roberts reference the “historical background against which the ATS was enacted” in giving meaning to the statute and how these historical events provided no support to the petitioner’s position. I have long argued (see here for “The Facade of FCPA Enforcement“) that certain aspects of FCPA enforcement are inconsistent with Congressional intent – a notion that becomes all the more apparent when reading “The Story of the FCPA” – the most extensive piece ever written on the FCPA’s history that I published this past December upon the FCPA’s 35th anniversary.

The concurring opinion of Justice Alito, joined by Justice Thomas, is also instructive in that it states when the ATS “claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritoriality.” Applying this to the FCPA context, can it truly be said that the above FCPA enforcement actions against foreign actors touched and concerned the territory of the U.S. with “sufficient force”?

Even the concurring opinion of Justice Breyer, joined by Justices Ginsburg, Sotomayor and Kagan, is instructive. This opinion did not invoke the presumption against exterritoriality in concluding that the claims should be dismissed, but rather found that jurisdiction was lacking for another reason. Namely that the foreign corporations, while having shares traded on U.S. exchanges, had an insufficient presence in the U.S. such that it would be “farfetched to believe, based solely upon the defendants’ minimal and indirect American presence, that this legal action helps to vindicate a distinct American interest.” The parallels to FCPA enforcement actions against foreign actors for alleging bribing foreign officials in foreign lands are obvious.

If FCPA enforcement actions against foreign actors are based on aggressive and dubious territorial jurisdictional theories – why don’t the companies aggressively litigate?

This highlights the second key difference between the ATS and the FCPA. The only reason the Kiobel case made it to the Supreme Court is because the plaintiffs in ATS cases have little leverage against the corporate defendants. ATS actions are civil actions brought by private plaintiffs and are thus actually litigated. I know, it seems a bit old-fashioned doesn’t it.

In contrast, certain courts have held (although by no means is the argument that the FCPA ought to have a private right of action a fait accompli) that the FCPA does not have a private right. The FCPA is thus only enforced by the DOJ (or the SEC as to issuers). These government enforcement agencies, unlike ATS plaintiffs, have big and sharp sticks that corporate defendants (and individuals as well) are mindful of in deciding how to proceed when subject to FCPA scrutiny.

Indeed, as explained in this prior post, when the above referenced Japanese company charged for making bribe payments to Nigerian officials raised jurisdictional issues, the DOJ stated that the company was not cooperating. Specifically the resolution document states as follows. “After initially declining to cooperate with the Department based on jurisdictional arguments, [the company] began to cooperate.” A company doesn’t cooperate with the DOJ in an FCPA enforcement, the chances are higher that the company will be indicted as opposed to being offered one of the resolution vehicles discussed below.

In short, to challenge a “plaintiff” in an FCPA enforcement action first requires a company to be criminally indicted by the DOJ or in the SEC context to be charged by the company’s primary government regulator. The impact on the company’s market capitalization upon indictment or civil charging is likely to be much greater than the FCPA fines or penalties the DOJ and/or SEC are seeking.

Indeed, in the FCPA’s 35 year history only two companies have put the DOJ to its burden of proof at trial and both companies ultimately prevailed. The first instance, involving an issuer occurred in 1991, and the second instance, involving a private company, occurred in 2011.

To make matters worse, per DOJ policy, all FCPA enforcement shall originate from Main Justice in Washington, D.C. This means from a discretion and supervision standpoint that a very small group of individuals are in the charge of an entire area of law. Contrast this with DOJ insider trading cases, financial fraud cases, etc. that can originate from any U.S. Attorneys office in the country

To make matters even worse, in 2004 the DOJ introduced non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) to the FCPA context. These agreements have the practical effect of insulating DOJ FCPA enforcement theories in corporate enforcement actions from any judicial scrutiny.

These dynamics of FCPA enforcement are simply not present in ATS cases and for this very simple reason the ATS, unlike the FCPA, has been the subject of much litigation over the past decade. Imagine if the ATS was only enforced by the government, consolidated entirely in one office in Washington D.C., and that the government used NPAs and DPAs to resolve the cases.

The Supreme Court would have never heard the Kiobel case, nor would the Supreme Court have heard the Sosa ATS case in 2004, nor would various appellate courts have heard ATS cases over the past decade or so.

Returning to the original question – will Kiobel have an impact on FCPA enforcement? The logic and rationale of many justices in Kiobel would sure seem to have direct bearing on certain aspects of FCPA enforcement, and indeed can be viewed as Supreme Court disapproval of certain aspects of FCPA enforcement.

However, in order for judicial logic and rationale to be triggered, the judiciary needs to play a role, and in the FCPA context the judiciary rarely gets to play a role because of government enforcement policies.