Line In The Sand: What Actions Bring Foreign Nationals Within Reach Of An FCPA Action

Last month, two judges in the Southern District of New York issued decisions considering when enforcement actions by the U.S. Securities and Exchange Commission can proceed against foreign nationals in cases involving allegations of bribes paid in foreign countries. Viewed together, the decisions provide guidance in applying an otherwise case-specific analysis.

In both cases, defendants moved to dismiss for lack of personal jurisdiction. At issue in the cases was the due process test for personal jurisdiction, which has two related components: the "minimum contacts" inquiry and the "reasonableness" inquiry. A court first must determine whether the defendant has sufficient contacts with the United States to justify the court's exercise of personal jurisdiction.1 Most common in these types of enforcement actions is so-called "specific jurisdiction," which exists when a defendant "purposefully directs his activities at residents of the forum," and the underlying cause of action "arises out of or relates to those activities."2 To establish the necessary "minimum contacts" to justify such "specific" jurisdiction, the plaintiff must show that the defendant "purposefully availed" himself of the privilege of doing business in the United States and that the defendant could foresee being "haled into court" there.3 The second stage of the due process inquiry asks whether the assertion of jurisdiction comports with traditional notions of fair play and substantial justice -- that is, whether it is "reasonable" under the circumstances of the particular case.4 As one of these recent decisions pointed out, "the reasonableness inquiry is largely academic in [such] cases brought under federal law which provides for nationwide service of process because of the strong federal interests involved."5

Enough Said: Finding Personal Jurisdiction

In SEC v. Straub, Judge Richard Sullivan denied defendant's motion to dismiss, finding the SEC met its burden of establishing personal jurisdiction over the defendants.6 The defendants were executives of a Hungarian telecommunications company, Magyar Telekom, Plc. ("Magyar") and allegedly bribed Macedonian government officials in 2005. The defendants are all Hungarian nationals who were never physically present in the United States. At the time of the alleged bribes, Magyar's securities were publicly traded in the United States through American Depository Receipts ("ADRs") listed on the New York Stock Exchange. The defendants had signed certifications to Magyar's auditors under the Sarbanes-Oxley Act ("SOX") regarding the accuracy of the company's financial statements and internal...