Abstract
Commencing with the U.S. Supreme Court’s ruling in Morrison v. National Australia Bank Ltd., a shift away from the “conduct and effects” test and the prior expansion of extraterritorial jurisdiction in U.S. courts seemed inevitable. However, Morrison and other Court rulings held that the presumption against territoriality was rebuttable by showing the U.S. Congress had intended that the statute applied to overseas misconduct via either language, structure or context. In a decision of first impression, the Tenth Circuit in Scoville v. SEC held that the Dodd-Frank law had indeed demonstrated Congressional intent with respect to extraterritorial governmental enforcement of U.S. securities laws thus overriding the presumption. The court therefore reverted to the decades-long “conduct and effects” test in evaluating whether overseas violations of securities laws would come within the purview of extraterritorial jurisdiction. The ruling has potentially significant implications for Chinese corporations that violate Federal laws outside the United States in non-securities contexts as well. Chinese corporations conduct business globally and might violate the anti-bribery provisions of the United States Foreign Corrupt Practices Act (“FCPA”). This article examines the implications for Chinese corporations in light of the Scoville ruling through the lens of the FCPA opining that the context and construct of the FCPA militate strongly in finding Congressional intent to have the FCPA applicable extraterritorially. Moreover, in an age of geo-strategic hegemonic rivalry, U.S. courts may — depending upon the specific facts — find the violation as having “effects on the United States” — thus falling within the governmental enforcement powers of the U.S. Securities and Exchange Commission and Department of Justice.

I. Introduction

The question of extraterritorial jurisdiction in U.S. federal courts involves determining “the application of U.S. law to conduct that takes place at least partially outside the territory of the United States . . . ” While a long-standing “presumption against extraterritorial jurisdiction” exists, the judicial interpretation and application of the “presumption” has shifted over time. Yet the “constant” is the judicial inquiry with respect to whether Congress intended the statute to be relegated solely to domestic concerns. During the latter part of the 20th century, federal courts increasingly utilized the “conduct and effects” standard finding that Congressional intent to exercise extraterritorial jurisdiction existed either if the conduct took place in the U.S. or if overseas conduct created effects that were manifested in the U.S.

In 2010, the Supreme Court modified the conceptualization of the presumption holding that unless the statute stated to the contrary, federal laws were automatically presumptively not extraterritorially applicable. Morrison v. National Australia Bank Ltd. “re-energized” the presumption ruling that the decades-long “conduct and effects” standard previously extensively used by courts was “unpredictable and inconsistent.” However, Morrison conceded that federal laws could indeed be applied extraterritorially if Congressional intent in favor of the extraterritorial application of the statute was established. Significantly, the Court held that specific language of Congressional intent in the statute was not required and that “context can be consulted” in determining whether Congressional intent existed regarding the extraterritorial effect of a statute.

Immediately after Morrison, the U.S. Congress passed the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). Specifically, Section 929P(b) of Dodd-Frank amended the extraterritorial power of the Securities Act and the Exchange Act. Pursuant to Dodd-Frank, U.S. courts were explicitly empowered to allow government enforcement action in securities laws cases. However, courts struggled to determine whether the presumption was indeed overridden in securities enforcement actions; courts continued applying Morrison’s automatic presumption while noting their hesitancy and raising the possibility that Dodd-Frank’s amendments did, in fact, override Morrison.

In Scoville v. SEC, the District Court found that Morrison was no longer valid in the context of government enforcement of Federal securities laws violations and certified the issue for interlocutory appeal to the Court of Appeals. The Tenth Circuit Court of Appeals affirmed and stated the context of Dodd-Frank evinced Congressional intent that the Federal securities laws should be applied extraterritorially in the context of government enforcement thus re-introducing the traditional “conduct and effects” test.

Pursuant to Scoville, once the presumption is overcome, extraterritoriality in the context of government enforcement suits depends on the “conduct and effects” test. The ruling has potentially important implications with respect to enforcement actions in non-securities contexts if the government can establish Congressional intent and the “conduct and effects” standard is satisfied. This article will discuss the implications through the lens of the United States Foreign Corrupt Practices Act.

The context and structure of the FCPA and the FCPA amendments all strongly militate towards finding Congressional intent for extraterritorial application of the FCPA — a statute designed to deter and punish bribery of foreign officials. The FCPA is divided into two parts: the anti-bribery and accounting provisions. This article only discusses the anti-bribery provisions as the accounting provisions are essentially limited to “issuers”. The FCPA anti-bribery section prohibits improper payments to foreign governmental officials for the purpose of obtaining a business advantage. The jurisdictional basis of the anti-bribery provisions contains three primary jurisdictional hooks: “domestic concerns”, “issuers” and “territorial” — acting within the territory of the U.S. In evaluating the question of extraterritorial jurisdiction over foreign defendants (defendants that are neither domestic concerns nor issuers), a court will first need to determine whether the presumption against extraterritoriality is overcome. If the presumption is rebutted, the issue is whether the overseas conduct had effects in the United States.

The question this article raises is whether a Chinese corporation that is neither a “domestic concern” nor an “issuer” but allegedly violates the FCPA overseas, can fall within the territorial prong of the FCPA’s jurisdiction for purposes of a government enforcement proceeding. Presuming the presumption is overcome, there are two factors militating towards potentially finding “effects” in the United States thus complying with the “territorial jurisdictional hook” of the FCPA itself. One, in light of the U.S.-China hegemonic rivalry, a U.S. court might conclude the specific Chinese entity’s activities and/or the specific conduct might constitute effects having adverse national security implications in the United States. Geo-economic rivalry was an important factor in the enactment of the FCPA — the legislative intent of the FCPA was driven to a substantial extent by the former U.S.-Soviet rivalry.

[T]he major motivation for the FCPA was a perception of the national security risks that foreign payments posed. Congressional hearings highlighted the legislators’ very strong concern that foreign corrupt payments were harming the United States’ ability to win the Cold War.

U.S. national security concerns may become an important factor in court rulings on extraterritorial jurisdiction against Chinese entities in FCPA enforcement proceedings.

Two, if the conduct involves the United States banking system, a court may also rule this directly affects the United States. Indeed, while not yet scrutinized by a judicial authority, this second factor has been successfully used by the U.S. government to obtain resolutions in prior FCPA enforcement actions. Significantly, for foreign defendants, the U.S. enforcement agencies’ Guidelines state that “territorial jurisdiction” encompasses defendants’ acts in furtherance of the bribery should they avail themselves of various acts such as monetary wires or utilizing the U.S. banking system to further the violation. In recent enforcement cases, the use of the U.S. banking system has been interpreted broadly to include foreign defendants’ usage of U.S. banks even if done remotely from outside the U.S. Cutting against this view is a ruling made by the Second Circuit that found the territorial nexus hook of the FCPA requires actual physical presence in the United States.

This paper contributes to the literature by highlighting how Scoville’s reasoning is applicable in contexts other than securities enforcement as well as analyzing “conduct and effects” in an era of geo-economic competition. The article proceeds as follows: Section II provides an overview of the issue of extraterritorial jurisdiction in U.S. courts by presenting an historical perspective, a review of recent Supreme Court “rebuttable presumption” rulings and Scoville’s return to the “conduct and effects” test. Section III provides a background to the FCPA and the FCPA Amendments which indicate Congressional intent for the extraterritorial application of the FCPA. Section IV analyzes the “conduct and effects” test with respect to Chinese entities and discusses the implications of the era of hegemonic competition with respect to a court’s evaluation of “conduct and effects.”