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November 6-12, 2016 is Corporate Compliance & Ethics Week. Now in its 12th year, Corporate Compliance & Ethics Week continues to shine a spotlight on the importance of ethics and compliance in every workplace.
One year ago, Deputy Attorney General Sally Quillian Yates issued a memorandum entitled “Individual Accountability for Corporate Wrongdoing,” also known as the “Yates Memo.” It recommends that prosecutors focus on potentially culpable individuals from the inception of an investigation. The Yates Memo suggests that “because a corporation only acts through individuals, investigating the conduct of individuals is the most efficient and effective way to determine the facts and extent of any corporate misconduct.” The Yates Memo, along with the Department of Justice (DOJ) and Securities and Exchange Commission’s (SEC) expansive approach to extraterritorial jurisdiction, constitute a new trend in FCPA enforcement. You might expect that these two developments would make it easier to bring FCPA violators to justice in the United States. Yet, in reality, following the Yates Memo can be extremely challenging, especially if alleged FCPA violators are foreign nationals.
The recent case involving the Ukrainian natural gas magnate Dmitry Firtash illustrates the severe difficulties faced by the DOJ and SEC in bringing foreign nationals to trial in the U.S. In 2013, Firtash along with five others was charged with “with racketeering, money laundering, and FCPA conspiracies” to bribe public officials in India’s state of Andhra Pradesh in order to secure licenses to mine titanium. These charges were the result of the investigation that the FBI’s Chicago Field Office had conducted over the course of several years. After Firtash was arrested in Austria in March 2014, the U.S. initiated extradition proceedings. However, Austrian judge Christoph Bauer denied the extradition request because he considered the case politically motivated and lacking “sufficient proof.” The battle to prosecute Firtash, however, was not entirely lost. In August 2016, the Austrian Constitutional Court refused to consider Firtash’s request “to recognize the US-Austrian extradition agreement unconstitutional,” thus allowing for the prosecution’s appeal. Although the result is still unclear, the case vividly demonstrates that even in the relations with its European allies, the U.S. faces difficulties in the process of extradition of foreign residents charged with FCPA violations and other white-collar crimes.
Firtash is only one in a long list of cases where the DOJ goes to extraordinary length to locate and extradite FCPA-related fugitives, with substantial commitment of prosecutorial resources. The ability of the DOJ and SEC to prosecute foreign individuals is limited in highly corrupt countries – such as Russia and China – that are not willing to cooperate and assist in extradition. To begin with, Federal Rule of Criminal Procedure 4 requires U.S. prosecutors and law enforcement to serve summons to individual defendants personally. This, however, requires permission from a foreign state, which might be difficult to receive in countries that have not signed mutual legal assistance treaties with the US. Yet, even signed extradition treaties are no panacea for FCPA enforcement actions against foreign individuals. For example, when in 2011, the DOJ charged eight former senior executives of Siemens AG with FCPA violations, Germany was reluctant to extradite its citizens. Only one defendant in the notoriously famous “Siemens 8” case, Andres Truppel, pleaded guilty “to conspiring to pay tens of millions of dollars in bribes to Argentine’s government officials to secure, implement and enforce a $1 billion contract to create national identity cards”. The remaining seven defendants in this case remain at large.
In many cases, alleged FCPA violators prefer to hide in so called “extradition safe havens.” For example, for many years, the U.S. has been trying to bring to trial the Czech-born investor Victor Kozeny, also known as “the Pirate of Prague.” In 2012, he was charged with FCPA violations and money laundering. The U.S. located him in the Bahamas and initiated his extradition. The Bahamian court rejected the request on the grounds that foreign bribery does not constitute a crime under its domestic law. In a similar case, South Korea refused to extradite Han Yong Kim, the former president of the Korean office of Control Components, Inc. (CCI). The South Korean authorities did not consider that Kim’s case involved bribing of public officials.
However, a foreign country’s refusal to extradite alleged FCPA violators is no guarantee that they can elude prosecution. In such cases, one of the DOJ strategies is to use Red Notices (international alerts about crimes circulated in the Interpol system) and lie in wait for an accused person to travel to countries with fewer protections from extradition. This is what happened to Bern Kowalewski, the former president and chief executive officer of Lufthansa’s BizJet subsidiary, who was arrested on a Red Notice in Amsterdam. In 2015, Kowalewski pleaded guilty to conspiracy to bribe public officials in Mexico and Panama. The problem with Red Notices, however, is that they are not binding. Some countries treat Red Notices as international arrest warrants, but it is up to each Interpol member state to decide how to respond to them.
The Firtash and similar cases show that prosecuting foreign nationals for FCPA violations remains extremely challenging. On the other hand, these cases demonstrate the U.S. commitment to investigate and pursue corrupt conduct globally. In the words of the FBI Special Agent who worked on the Firtash case, “With the assistance of our law enforcement partners, both foreign and domestic, we will continue to pursue those who allegedly bribe foreign officials in return for lucrative business contracts.” This expansive approach to extraterritorial jurisdiction in FCPA enforcement is becoming increasingly important in this new era of a globalized economy and transnational crime.
Yulia Krylova is a doctoral candidate at George Mason University