International: US Second Circuit rules that US wire transfers are sufficient to confer US jurisdiction in commercial bribery prosecution - What does this mean for APAC companies?

In brief

On 22 June 2020, the US Court of Appeals for the Second Circuit affirmed the convictions of two foreign nationals, Juan Angel Napout and Jose Maria Marin, former officials of the Fédération Internationale de Football Association (FIFA) and the Confederación Sudamericana de Fútbol (CONMEBOL), for conspiracy to commit honest services wire fraud. The Second Circuit held that the use of US wire services could be sufficient in itself to confer US jurisdiction over foreign nationals in such prosecutions, even if the remainder of the fraudulent scheme took place outside of the US. 

In 2017, Napout and Marin were convicted of conspiracy to commit honest services wire fraud (among other charges) after the jury found that they had accepted bribes from media and marketing companies in exchange for giving them broadcasting and marketing rights in connection with football tournaments under their control. In 2019, the pair jointly appealed their convictions, which the Second Circuit affirmed.


Contents

This decision means that companies and individuals doing business outside the US including in the APAC region, should be aware of the possibility of US prosecutors using the honest services wire fraud statute to prosecute foreign commercial bribery where the funds were routed through the US. Further, in light of this decision, companies operating in APAC should ensure that their policies, procedures and trainings strictly prohibit commercial bribery – even if there is no specific local law to that effect in their jurisdiction.

Key takeaways

In sum, the decision has two main takeaways for companies and individuals operating in the APAC region. 

  • It’s not just the Foreign Corrupt Practices Act (FCPA). The FCPA is the US anti-bribery law that receives the most interest from companies operating overseas – and rightly so, as it has explicit extraterritorial application and has resulted in very large fines. This time, however, prosecutors did not bring the charges under the FCPA, as the conduct at issue involved commercial bribery between private parties, not bribery of foreign government officials (although note that commercial bribes can still run afoul of the FCPA's accounting provisions). The new opinion from the Second Circuit (the court with federal appellate jurisdiction over the district courts in Connecticut, New York and Vermont) makes clear that, under certain circumstances, the US can prosecute foreign persons for foreign commercial bribery schemes under the US honest services wire fraud statute. 
  • Local law allowing commercial bribery not a defense under the honest services wire fraud statute. Napout (former president of Paraguay’s national football federation) and Marin (a former head of the Brazilian national football federation) tried (and failed) to argue that the trial court should have allowed them to introduce evidence that commercial bribery is lawful in their home jurisdictions, in order to show lack of fraudulent intent. The Second Circuit clarified that local law is admissible only in narrow circumstances.  

In more detail

Below, we provide more detail on the two key takeaways above and guidance on what APAC companies should do following this recent decision. 

Honest Services Wire Fraud

To prove honest services wire fraud under the relevant statutes, the prosecution must show, among other things, that there was a scheme which was intended to defraud by denying others of “the intangible right of honest services” using the US mail or wire services. 

Napout and Marin argued that their convictions were based upon impermissible extraterritorial application of the statutes because their scheme was carried out almost entirely outside of the US.  

The Second Circuit rejected this argument on the grounds that the case involved domestic application of the statute. Applying precedent related to civil actions under the Racketeer Influenced and Corrupt Organizations Act (RICO), the Second Circuit held that the key issues were whether:

  • the use of US wire services in furtherance of the scheme to defraud occurred in the US (not whether the scheme itself occurred in the US); and
  • the US wire transfers were “essential, rather than merely incidental” to the scheme to defraud.

Napout received bribes that were often in US dollar notes from a US bank account, as well as luxury items paid for in USD. In total, USD 2.5 million of the USD 3.3 million Napout received were paid for in cash in USD generated by wire transfers originating in the US.

Marin frequently received bribe payments via his New York bank account. He also used a debit card connected to his New York bank account to purchase USD 50,000 worth of jewelry and USD 10,000 worth of clothes from US stores. In total, USD 2.4 million of the USD 3.3 million Marin received were via his New York bank account. 

In light of the above, the Court determined that the use of US wire services was “integral” to the transmission of the bribes to Napout and Marin and that the US wire transmissions were “central” to the alleged schemes because they provided a “key means of paying those bribes.” 

Relevance of Local Law 

Napout and Marin also argued that the District Court was wrong in precluding them from introducing evidence that commercial bribery was legal in their home countries in order to prove lack of fraudulent intent (or bad faith), a necessary element of the offense. (Note that this is different to the “local law defense”, which is an affirmative defense under the FCPA.)

The Court explained that whether Napout and Marin had acted with fraudulent intent (or bad faith) turned on whether they understood that by accepting bribes they were violating FIFA and CONMEBOL's codes of ethics (which clearly prohibited commercial bribery). Local laws are only relevant to the extent that Napout and Marin could prove that they believed that their local laws permitted commercial bribery and that their organizations' codes of ethics provided identical obligations to those provided under their local laws. Since neither Napout nor Marin had put forth any evidence of such belief, local law evidence carried "extremely low probative value" and admitting such evidence would only risk misleading the jury.  

As Baker has previously overviewed (although note that this is a rapidly evolving area of law and we recommend checking with attorneys familiar with the current local law of each jurisdiction as applicable), in several APAC jurisdictions commercial bribery is not unlawful (or legal under certain circumstances). For example:

  • Commercial (private-to-private) bribery is not per se illegal under Hong Kong’s Prevention of Bribery Ordinance (POBO) provided the parties know about it.  It is only where there is an element of secrecy that violates the agent-principal relationship that it becomes an offense (and even then, it can be forgiven through consent). 
  • There is no specific offense prohibiting private sector bribery in Thailand, although acts of commercial bribery may constitute other offenses in specific circumstances. For example, hiding an improper payment by falsifying accounting records may constitute accounting fraud under the Accounting Act.
  • There is no overarching prohibition against private sector bribery in Japan. However, Article 967 of the Companies Act broadly prohibits company directors and other senior officers of a company from soliciting or accepting any improper benefits in response to a wrongful request to perform (or not perform) their duties in a certain way.

Accordingly, companies and individuals should take note that – should there be a US nexus such as wire transfers through a US bank – there is a risk that US prosecutors may prosecute them for foreign commercial bribery schemes even if the conduct is not unlawful locally. This also highlights the benefit of broad, best-practice global policies that prohibit improper conduct at the highest level. We regularly work with companies to develop such best practice policies that meet the requirements of jurisdictions globally. 
 

Contact Information
Mini vandePol
Asia Pacific Head
Hong Kong
mini.vandepol@bakermckenzie.com
Maurice Bellan
Managing Partner
Washington, DC
maurice.bellan@bakermckenzie.com
Anna Lamut
Registered Foreign Lawyer
Hong Kong
anna.lamut@bakermckenzie.com
Graham Cronogue
Senior Associate
Washington, DC
graham.cronogue@bakermckenzie.com

Copyright © 2022 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.