The United States may prosecute foreign fraudsters using U.S. wires when their entirely foreign-based schemes use U.S. wires to victimize persons in the United States. That is the conclusion we draw from the Fourth Circuit’s decision in United States v Elbaz. The Elbaz court joined the Ninth Circuit in holding that the wire-fraud statute’s focus on the misuse of U.S. wires meant that the prosecution of any foreign scheme is a permissible domestic application of the statute as long as there is a wire transmission in the United States. The decision probably represents the outer limits of the statute’s permissible domestic application, though it denies the government the unfettered extraterritorial reach – a power the government previously sought.
But striking is the court’s discussion of the permissible geographic reach of the wire-fraud conspiracy statute (which carries the same heavy penalties as the wire-fraud statute). The court concludes that the conspiracy statute can reach any foreign conspiracy to commit wire fraud, irrespective of the fraudsters’ or victims’ geographic locations. In other words, U.S. law enforcement may now be able to prosecute entirely foreign conduct harming foreign victims; all that is needed is the intended use of a U.S. wire to further the fraudulent scheme that is the object of the alleged conspiracy.
The Outer Limits of the Wire-Fraud Statute Territorial Application
As a general manner, the wire-fraud statute, like most U.S. criminal law, applies only to U.S. domestic conduct. Under the Supreme Court’s 2016 RJR Nabisco decision, “[i]f the conduct relevant to the statute’s focus occurred in the United States, then the case involves a permissible domestic application even if other conduct occurred abroad.” As we have previously written, the federal government has argued that a foreign fraudulent scheme implicates the wire-fraud statute if there is a transmission over U.S. wires in its furtherance because the statute’s focus is the use of the wires, not the fraudulent scheme itself. But generally, the government has used this statute against foreign actors where at least some part of the fraudulent scheme was devised in the United States or victimized persons in the United States. It is undisputed that the United States, as the sovereign, has a strong interest to protect its people from criminal activity – foreign and domestic.
Among the cases on the fringe is the Ninth Circuit’s 2020 decision in United States v. Hussain. In Hussain, the Ninth Circuit upheld the wire-fraud convictions of a U.K. chief financial officer related to the botched acquisition of his U.K.-based company by a California company. The fraud’s victim was the California-based company. The government showed that the CFO—while in the U.K.—inflated the company’s revenues and then made calls and sent emails to the acquirer in California misrepresenting the U.K. company’s financials. The Ninth Circuit held this to be a permissible domestic application of the wire-fraud statute because its focus is the misuse of the wires.
The Fourth Circuit’s Elbaz decision is essentially indistinguishable from Hussain and applies the same logic: “the focus of the wire-fraud statute is the use of a wire to execute a scheme” and therefore the convictions of foreign fraudsters is a “permissible domestic application.” In fact, Elbaz cites Hussain for that proposition. In Elbaz, two foreign companies marketed binary options to Maryland residents. An agent would contact potential customers who responded to the ads. Once the potential customers deposited money, their customer care was transferred to an Israeli-based company. The government showed that the chief executive officer of that company (Elbaz) made fraudulent representations to retain the investors. The government also showed that the CEO made three communications to Maryland residents—a phone call and two emails—that were in furtherance of the fraudulent scheme. The Fourth Circuit held that to be a permissible domestic application of the wire-fraud statute.
A Word of Caution: Conspiracy to Commit Wire-Fraud
Most striking, however, is the Elbaz court’s statement that the United States can prosecute any foreign wire-fraud conspiracy (or attempt), even if it has no relationship to the United States (including U.S.-based victims) so long as a wire transmission used to execute the scheme either originates inside the U.S. or is received inside the U.S. The court noted, “conspiracies operate wherever the agreement was made or wherever any overt act in furtherance of the conspiracy transpires, which may include a place where the defendant has never set foot.” And because the focus of the wire-fraud conspiracy statute is the attempted or conspired violation of the wire-fraud statute, and because the wire-fraud statute’s own focus “is the use of a wire to execute a [fraudulent] scheme,” then any use of a U.S. wire to further a wire fraud, including where charged as a conspiracy, may be prosecuted in the United States.
This far-reaching opinion may bring foreign conduct within the preview of U.S. law enforcement that previously was not (or was not generally thought to be within the purview of U.S. law enforcement). It is unclear to what fact patters the Fourth Circuit or other courts may apply the Elbaz pronouncements. The principal limiting factor is the usual interpretation of a wire transmission, which is the sending or receiving of a wire. That element still requires a U.S. nexus. It is possible, however, that a prosecutor may argue that a simple transmission through U.S.-based servers suffices (say, to facilitate a crypto transaction). And the case the Fourth Circuit relied on, United States v. Ojedokun, concerned the extraterritorial application of the federal money laundering conspiracy statute, which expressly provides for its extraterritorial application under certain circumstances. The wire-fraud conspiracy statute does not have such extraterritorial provision. Still, we see zealous prosecutors using this language and possibly making the argument in the right circumstance. And given the wire-fraud statute’s wide use to prosecute a myriad of conduct – from extortion and securities fraud to M&A deals gone wrong – we reiterate our caution to foreign corporations and business leaders to exercise increased diligence to ensure they understand and appropriately manage their legal exposure to both criminal and civil liability in the United States.