On Monday, March 25, 2019, in a brief order without any dissents, the Supreme Court denied certiorari in In re Grand Jury Subpoena, the case also known as the “Mueller Mystery Case” because the name of the party involved remains under seal by the courts. The Supreme Court’s order comes one day after Attorney General William Barr submitted his summary of the main conclusions from Special Counsel Robert Mueller’s investigation into Russian interference in the 2016 election. Though the report means the end of the Special Counsel’s investigation, the Supreme Court’s order serves as a reminder that many of the legal proceedings arising out of the Special Counsel’s investigation are still ongoing, with their impact still unknown.
In the short term, however, the Supreme Court’s denial suggests the unknown company must now comply with the government’s criminal subpoena or face a mounting fine, believed to be over $2 million. The decision leaves in place an opinion by the D.C. Circuit that interprets the federal criminal jurisdiction statute 18 U.S.C. § 3231 in a way that potentially expands the reach of federal prosecutors to serve and enforce criminal subpoenas on foreign sovereigns and state-owned entities, especially those with a presence in the United States.
The case involves a dispute between an unnamed state-owned entity—wholly-owned and operated by “Country A” as it is referred to in court documents—and the Special Counsel’s office. The Special Counsel issued a criminal subpoena to the unnamed state-owned corporation related to the investigation of alleged Russian interference in the 2016 presidential election. The corporation refused to comply with the subpoena, claiming that federal courts could not enforce the subpoena against it as a foreign sovereign and that it was immune under the Foreign Sovereign Immunities Act (“FSIA”). The FSIA grants immunity to foreign sovereigns, including state-owned entities, but makes broad exceptions for, among other things, matters related to a foreign sovereign’s commercial activities in the United States.
In its opinion, the D.C. Circuit avoided the question of whether the FSIA was originally intended to address criminal as well as civil matters. The D.C. Circuit instead held that federal courts have the power under the federal criminal jurisdiction statute to enforce criminal subpoenas against foreign sovereigns. The court further held that even if the FSIA did provide immunity in criminal cases based on the Special Counsel’s showing (which was redacted from the decision), the corporation’s activities squarely fit within the FSIA’s “commercial activity” exception.
The D.C. Circuit’s opinion likely will not have a significant impact on the federal government’s ability to collect documents from foreign sovereigns and state-owned entities located abroad—the government still faces other burdens like anti-blocking statutes, the onerous process under mutual legal assistance treaties (“MLAT”), and the difficulties of personal jurisdiction, which are not addressed in the opinion. For cases where a foreign sovereign or, more likely, a state-owned entity has a presence in the United States, however, the D.C. Circuit’s interpretation of the federal criminal jurisdiction statute could potentially remove a key barrier to enforcing a criminal subpoena. The court’s decision could allow prosecutors to access a foreign sovereign’s documents located in the U.S. and possibly abroad as well.
The possible significance of this decision was foreshadowed by enforcement actions in late 2018 against Petroleo Brasileiro S.A. (“Petrobras”), a Brazilian state-owned oil company, for criminal allegations related to “Operation Carwash”—a large-scale bribery and bid-rigging scheme in Brazil. On September 26, 2018, the DOJ entered into a non-prosecution agreement with Petrobras for violations of the Foreign Corrupt Practices Act (“FCPA”). The following day, the SEC entered a cease and desist order against the company for FCPA violations and related claims.
Although Petrobras did not use the FSIA to challenge the DOJ’s or SEC’s right to issue the enforcement actions, it did claim that the FSIA prohibited a civil lawsuit related to the same allegations brought by a group of private equity funds. In July 2018, the D.C. Circuit held the case could move forward with its lawsuit against Petrobras for allegedly targeting U.S. investors and intentionally concealing related fraud because Petrobras’s alleged misconduct fell within the FSIA’s commercial activities exception.
Other state-owned entities with a presence in the United States may try in a criminal context what Petrobras tried in the civil context. The “Mystery Mueller Case,” however, suggests that the FSIA may not provide much protection for state-owned entities and foreign sovereigns from criminal enforcement relating to their commercial activities. And companies that do business with state-owned entities or foreign sovereigns with a presence in the United States should be aware that the government may be able to successfully subpoena those entities.