The Far-Reaching "Domestic" Application of U.S. Criminal Laws in Latin America
The Situation: Companies in Latin America and elsewhere, whether or not they have offices or personnel in the United States, frequently engage in transactions involving the U.S. banking system. In doing so, they can become subject to investigation and prosecution for the violation of certain U.S. criminal laws, including laws prohibiting fraud and bribery.
The Result: U.S. prosecutors are ready and eager to investigate and prosecute foreign targets. The recent case involving Salvador Cienfuegos Zepeda is the latest high-profile example, but developments in the FIFA corruption case demonstrate the extensive reach of U.S. law.
Looking Ahead: In designing and implementing their compliance programs and in conducting their affairs, companies that use the U.S. banking system should be mindful of the reach and scope of U.S. criminal laws, including not just the Foreign Corrupt Practices Act, but also the fraud statute discussed below.
Former Mexico Defense Secretary Arrested, But Case Thereafter Dismissed
The October arrest in Los Angeles of Salvador Cienfuegos Zepeda, Mexican Secretary of Defense from 2012-18, illustrates how U.S. criminal law may extend to persons acting outside the United States. Cienfuegos Zepeda was charged with conspiring to distribute narcotics and launder narcotics proceeds. The indictment, filed in federal court in New York, alleges conspiracies that took place within New York and elsewhere, without identifying specific acts. On November 16, the U.S. Department of Justice moved to dismiss those charges—not for any lack of U.S. jurisdiction, but in deference to investigation by Mexican authorities. Two days later, the court granted the motion.
The case of the retired general is just the latest reminder of the long arm of U.S. criminal law—even if, in a highly unusual case such as this one, the U.S. Department of Justice changes its mind about exercising that jurisdiction. This Commentary addresses the reach of the U.S. criminal statute that prohibits “honest services wire fraud,” which can extend to fraud and commercial bribery that took place outside of the United States. This Commentary addresses the reach of the U.S. criminal statute that prohibits "honest services wire fraud," which can extend to fraud and commercial bribery that took place outside of the United States.
The "Domestic" Application of U.S. Criminal Jurisdiction
U.S. courts frequently address the issue of which criminal statutes apply "extraterritorially"—outside the territory of the United States—and which apply only "domestically." The U.S. Supreme Court has ruled that in interpreting criminal statutes, courts presume that those statutes only apply domestically, unless the statute gives a clear indication that it applies extraterritorially. Some federal criminal statutes, like the anti-money laundering laws or the Foreign Corrupt Practices Act, discussed in a recent Jones Day White Paper, clearly indicate that they apply extraterritorially in certain circumstances.
What about the reach of U.S. criminal statutes that apply only "domestically”? A case decided this summer by the U.S. Court of Appeals in New York shows the extensive reach of such laws.
Recent Lessons from the FIFA Case
That case, United States v. Napout, involved the appeal of two persons convicted in connection with the FIFA bribery scandal. One defendant was the former president of Paraguay’s national football federation; the other was the former head of the Brazilian national soccer federation. The two defendants were accused of participating, along with others, in a scheme to accept millions of dollars in bribes from sports media and marketing companies, in exchange for granting broadcasting and marketing rights for football tournaments. The defendants were charged not with violating the bribery statutes, but instead with conspiring to commit "wire fraud"—fraud involving the use of wire or electronic communications. Under a theory known as "honest services" wire fraud, the indictment alleged that the defendants, by accepting bribes, violated their fiduciary duties to their employers. In short, they defrauded their employers by preventing those employers from receiving their "honest," that is bribe-free, services.
On appeal, the defendants argued that the wire fraud statute did not apply to their conduct outside the United States. One defendant asked: "By what authority does the United States purport to police the relationship between a Paraguayan employee and his Paraguayan employer, and an alleged scheme involving South Americans that took place almost entirely in South America”? The defendants also argued that the acts at issue—which amounted to commercial bribery, rather than bribery of a public official—were legal under the laws of the South American countries in which those acts were committed.
The Court of Appeals accepted that the federal wire fraud statute applied only "domestically," not "extraterritorially." But the court determined that there were sufficient acts within the United States to affirm the convictions. One defendant received bribe payments in his bank account in New York, and used a debit card associated with that account; the other defendant received cash bribes derived from U.S. bank accounts, that had been wired to a money changer in Argentina before being delivered by hand. The court also cited gifts—like concert tickets and the use of a vacation house—that were paid for with money wired from a U.S. bank account. Because the payment of bribes to each defendant involved the use of wires within the U.S. banking system, the defendants could be convicted under a purely "domestic" application of the wire fraud statute.
The Court of Appeals also rejected the defendants’ argument that, at trial, they were wrongly denied the opportunity to present evidence that the payments were legal under the laws of Paraguay and Brazil. The court explained that the defendants’ fiduciary duties to their employers were not based on the laws of Paraguay and Brazil, but instead were based on the codes of ethics of FIFA and South American Football Confederation, of which they were members.
In summary, the court ruled that the defendants were properly convicted—under a U.S. crime of "domestic" application—because use of the U.S. banking system was essential to the commercial bribery scheme, without regard to whether those acts of commercial bribery were illegal under the laws where the defendants lived and were employed.
Ephraim David Abreu, an associate in the Miami Office, assisted in the preparation of this Commentary.
Three Key takeaways
- U.S. criminal laws may apply to transactions that involve the U.S. financial system, even if all the other acts at issue took place outside the United States.
- The U.S. wire fraud statute allows U.S. prosecutors to aggressively pursue not only bribery of U.S. or foreign officials, but also other conduct such as commercial bribery, regardless of whether that conduct is prohibited in the country where it took place. U.S. prosecutors may view themselves as protecting the integrity of the U.S. banking system through the exercise of such jurisdiction.
- U.S. prosecutors are ready, willing, and able to pursue such cases against foreign targets; any company or individual who uses the U.S. banking system in connection with an unlawful scheme should expect that such use may well subject the company or individual to prosecution under U.S. criminal laws. Companies should design and implement anticorruption compliance programs and conduct their affairs accordingly.