Even though a company may operate only in Africa, the DOJ and SEC have adopted a broad view of their jurisdiction and have used a relatively small nexus to the United States to establish a hook to prosecute FCPA violations that may have potentially crippling ramifications to the African company. This broad jurisdiction is of particular – and possibly surprising – concern to companies that may regard its American connection as slight or negligible.
The FCPA applies to, among other things, foreign companies that trade on any American exchange via American Depositary Receipts (ADRs). An ADR is a stock that trades in the United States and represents a specified number of shares in a foreign corporation. A company that trades in the United States via ADRs generally makes periodic SEC filings. It is well-established a foreign company that does nothing more in the United States than trade ADRs on an American exchange, makes itself subject to the DOJ and SEC’s FCPA jurisdiction.
The Net1 investigation demonstrates the expansiveness of the DOJ’s FCPA reach. In 2012, Net1 disclosed in its SEC filings that it was under investigation by the DOJ and SEC for possible FCPA violations. Net1, based in Johannesburg, South Africa, allegedly made corrupt payments in South Africa, by South African employees, to South African government officials; its only nexus to the United States is that it has a primary listing on the NASDAQ stock exchange. Net1’s FCPA investigation remains pending. With a similarly (and arguably tenuous) connection to the United States, the defendants in SEC v. Elek Straub, Andras Balogh, and Tamas Morvai, 11 CIV 9645, settled an SEC/DOJ investigation for alleged FCPA violations. In Straub, the defendants were Hungarian citizens who allegedly bribed Macedonian government officials in connection with a business matter. However, the company made SEC filings in connection with its ADRs that traded in the United States. In filed settlement documents, the parties agreed that the defendants were subject to DOJ prosecution because the company filings made with the SEC contained false or misleading information, arising from the allegedly corrupt acts.
Africa-based companies that seek to expand into financially attractive, emerging African markets would do well to keep in mind the expansiveness of the DOJ’s and SEC’s FCPA jurisdiction. [In light of this breadth, best business practices should include, at a minimum, (1) establishing an assertive anti-corruption compliance program, (2) adopting a strong tone-at-the-top, and (3) vigorously pursuing internal ethics or corruption issues.