The Fifth Circuit recently reversed a trial court’s dismissal of a criminal indictment charging two European citizens – including one who has never set foot in the United States – with Foreign Corrupt Practices Act (FCPA) and money laundering violations.1 In contrast to the trial court, the Fifth Circuit determined that the question of whether a statute reaches extraterritorial conduct is a merits issue to be determined at trial rather than a question of subject-matter jurisdiction that can prevent a court from even hearing the matter. This decision underscores the confusion between courts over the extraterritorial reach of the FCPA.
Indictment of European Citizens for American and Venezuelan Bribery Scheme
Rafoi and Murta were European citizens and worked for two different Swiss wealth management firms. The government alleged that by providing financial services through their firms, they engaged in an international bribery scheme in which U.S.-based businesses paid bribes to Venezuelan officials for favorable treatment from Venezuela’s state-owned energy company. Rafoi never set foot in the United States, and Murta only traveled to the United States once. Nonetheless, they were charged in the United States with conspiring to violate the FCPA, conspiring to commit money laundering, and money laundering charges.
The FCPA applies to three enumerated categories of actors: (1) issuers, (2) domestic concerns and their agents, and (3) persons who commit certain corrupt conduct in furtherance of FCPA violations while physically present in the United States. In this case, the government alleged that Rafoi and Murta were agents of an American company. With respect to Murta, the government also alleged that he traveled to the United States to meet his co-conspirators in furtherance of their bribery scheme. In addition to this direct liability theory, the government also advanced a secondary liability theory – that Rafoi and Murta were liable for conspiracy even if they were not enumerated actors subject to
principal liability under the FCPA.
District Court Dismisses Indictment on Jurisdictional Grounds
The district court dismissed the FCPA and related charges for lack of subject-matter jurisdiction.2 The court did not find an agency relationship because there was no direct evidence establishing that any U.S.-based individual or corporation had a right to control Rafoi and Murta. The court also found the term "agent" in the FCPA unconstitutionally vague when used as a jurisdictional hook to reach foreign nationals’ conduct overseas.
Moreover, the court rejected the government’s theory that Rafoi and Murta were secondarily liable as conspirators with enumerated actors. Although as a general rule a defendant may commit conspiracy even if incapable of committing the substantive offense, the court said this general rule does not apply when it has no jurisdiction over the defendant. In support of its conclusion, the court cited United States v. Hoskins, in which the Second Circuit held that secondary liability theories cannot be used to expand the jurisdictional reach of the FCPA beyond the categories of actors expressly enumerated in the statute.3
Fifth Circuit Reverses
The government appealed and the Fifth Circuit reversed. The appellate court explained that to invoke a federal district court jurisdiction in the criminal context, an indictment need only charge a defendant with an offense against the United States. The government did that here, so the district court had subject-matter jurisdiction, the Fifth Circuit concluded. The court further explained whether a non-U.S. person is an agent of a domestic concern and, thus, subject to the FCPA is a question on the merits to be litigated at trial.
Having clarified that subject-matter jurisdiction poses no issue and that agency is a merits question, the Fifth Circuit examined whether the indictment conformed to minimal constitutional standards so as to put the defendants on notice of the charges and agent-of-a-domestic concern theory against them. The court found the indictment adequate. Further, the Fifth Circuit held that the term "agent" as used in the FCPA is not vague. While that term is not defined in the FCPA, it is governed by its common-law meaning. The indictment alleged that Rafoi and Murta conducted various financial transactions at the direction of their American co-conspirators, giving them fair notice of an agency theory of
liability. Thus, the term "agent" was not vague as applied to them.
But with respect to the government’s theory of secondary liability and the limitations on that in the Hoskins decision, the Fifth Circuit bypassed the issue, stating that the district court had not "ruled upon" it.
The Fifth Circuit, in Rafoi, breathed new life into the extraterritorial reach of the FCPA. As a result, non-U.S. persons charged as agents of domestic concerns under the FCPA are forced to come to the United States to defend themselves. But as to whether secondary liability can be used to further expand the reach of the FCPA – a question decided by the Second Circuit in Hoskins – the Fifth Circuit declined to offer an opinion, leaving this issue uncertain for practitioners in the Fifth Circuit. Time will tell whether the Fifth Circuit and other courts will follow the Second Circuit’s lead to cabin the application of the FCPA to only those actors enumerated in the
1United States v. Rafoi, ___ F.4th ____, 2023 WL 1811921 (5th Cir. Feb. 8, 2023).
2United States v. Rafoi-Bleuler, No. 4:17-cr-00514-7, 2021 WL 9884704 (S.D. Tex. Nov. 12, 2021); United States v. Murta, No. 4:17-cr-00514-8, 2022 WL 4002321 (S.D. Tex. July 11, 2022).
3United States v. Hoskins, 902 F.3d 69, 76, 95 (2d Cir. 2018).