Botched prosecution highlights possible difficulties in pursuing fraud cases for conduct abroad

31 January 2017 9:55am

3 June 15. By Leah Nylen.

In 2014, US prosecutors charged two Ukrainian men and a Venezuelan national living in Canada with wire fraud and bribery related to a UN agency focused on standardizing machine-readable passports.

Less than a year later, a US federal judge threw out the charges, calling the case one of the most “misguided prosecutions” he had ever seen.

The botched prosecution, which is now being appealed, highlights one of the difficulties that corruption or even antitrust prosecutors can sometimes face in bringing fraud charges against foreign individuals for conduct that occurred abroad.

Yuri Sidorenko and Alexander Vassiliev, Ukrainians living in Dubai, owned several companies involved in the manufacturing of security and identity products such as passports, driver’s licenses and airline crew badges.

According to US prosecutors, the pair gave money and other things of value to Mauricio Siciliano, a Venezuelan national who worked for the International Civil Aviation Organization in Montreal, Canada. The ICAO, of which the US is a member, establishes standards for passports. In exchange for the gifts, Siciliano introduced the men to other government officials, arranged for them to appear at conferences and endorsed them to other organizations.

US prosecutors indicted the three men in June 2014 on honest services fraud and bribery charges. Lawyers for two of the defendants sought to dismiss the charges on the grounds that US fraud and bribery laws don’t apply extraterritorially.

In an April 17 hearing in San Francisco federal court, US District Judge Charles Breyer was particularly dubious regarding prosecutors’ arguments that the US government’s monetary contributions to the ICAO created enough of a nexus to apply US fraud and bribery laws to conduct that occurred abroad.

“I [have] never in my life, in 50 years of criminal practice, seen a more misguided prosecution as the one that you’ve brought. I just don’t even get it,” Breyer told prosecutors. “I don’t get it, how you can … use resources of the United States Attorney’s Office to prosecute some foreign nationals involved in a foreign company, engaged in conduct which was foreign, on doing things that weren’t directly related to the contribution of the United States to that entity.”

Breyer indicated at the hearing that he would dismiss the charges, and issued a written opinion on April 21 further explaining his rationale, which relied heavily on a 2010 US Supreme Court case on the extraterritoriality of US securities law.

In the case, the high court’s justices ruled that US laws shouldn’t be presumed to apply extraterritorially unless Congress explicitly indicated that the laws also relate to foreign conduct.

None of the bribery or wire fraud statutes with which Sidorenko, Vassiliev and Siciliano are charged clearly indicate they should apply extraterritorially, Breyer said, and all of the cases cited by the prosecutors to support their position either involved US citizens, events occurring in the US, or conduct that directly affected the US or federal agencies.

“Of course, the United States has some interest in eradicating bribery, mismanagement, and petty thuggery the world over,” he wrote. “But under the government’s theory, there is no limit to the United States’s ability to police foreign individuals, in foreign governments or in foreign organizations, on matters completely unrelated to the United States’s investment, so long as the foreign governments or organizations receive at least $10,000 of federal funding. This is not sound foreign policy, it is not a wise use of scarce federal resources, and it is not, in the Court’s view, the law.”

Prosecutors have filed an appeal of Breyer’s ruling with the US Court of Appeals for the Ninth Circuit. In the meantime, defendants in other fraud or bribery cases in which the conduct occurred abroad are likely to cite Breyer’s opinion in seeking to dismiss charges.

In some cases, antitrust prosecutors have charged individuals using similar fraud or conspiracy statutes rather than price-fixing or bid-rigging directly. For example, in the Libor case, individual traders have been charged with conspiracy and wire fraud, even though the banks themselves faced price-fixing charges.

One UBS trader, Roger Darin, a resident of Switzerland, sought to have a New York court dismiss the wire fraud charges against him, arguing that the law doesn’t apply extraterritorially. In a March opinion, US Magistrate Judge James C. Francis IV agreed that the wire fraud statutes don’t apply to conduct that occurs abroad. However, Francis found that the conduct at issue in the case, manipulation of the London interbank offered rate, involved domestic wires, not ones solely abroad, and therefore a sufficient domestic nexus existed for the charges to proceed.

“The co-conspirators purportedly caused the manipulated LIBOR to be published to servers in the United States and used United States wires to memorialize trades affected by that rate,” Francis wrote. “The culpable conduct underlying the substantive count therefore occurred in the United States. The presumption against extraterritoriality is thus irrelevant to both the wire fraud and the conspiracy.”

In the DOJ’s recent case against FIFA officials and soccer executives, prosecutors took care to emphasize that the alleged wire fraud involved bank accounts and wire transfers that began in the US, even though the alleged bribes were being sent to accounts in Trinidad & Tobago, Hong Kong, the Cayman Islands and elsewhere. As in the Libor case, those transactions may be enough of a US nexus to keep a federal judge from tossing out the fraud charges on extraterritoriality grounds.

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