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« Magnitsky-linked official named in Russia fraud probe | Main | World Bank Group: External Consultations on Review of Sanctions System »
Wednesday
Jul102013

What's good for reciprocity may be bad for FCPA prosecutions

On July 2, in the case of American Petroleum Institute v. SEC, the U.S. District Court for the District of Columbia vacated an SEC Dodd-Frank rule mandating that certain companies publicly disclose payments made to foreign governments in connection with the commercial development of oil, natural gas, or minerals. 

The decision in part stemmed from how, during the SEC rulemaking process, commentators had requested exemptions in regard to four countries -- Angola, Cameroon, China, and Qatar -- that instead prohibited such disclosures. Absent such exemptions, the commentators argued, oil, gas, and mining companies would have to withdraw from these countries at a cost of tens of billions of dollars.

The SEC found that these concerns were “warranted,” but nonetheless found that the requested exemptions would be inconsistent with the structure and language of [the applicable statutory provision],” and that it “could undermine the statute by encouraging countries to adopt laws, or interpret existing laws, specifically prohibiting the disclosure required under the final rules.”

But the court concluded that the SEC had acted “arbitrarily and capriciously” under the Administrative Procedure Act by not undertaking a “reasoned analysis” of the commentators’ case. As a result, the decision highlighted one problem that may, to varying degrees, pervade the entire corporate regulatory process, including FCPA case -- the failure to recognize that in an age of multinational corporations, not all countries have the same legal standards.

The SEC may have wanted to mandate certain corporate disclosures to, among other things, ensure greater FCPA compliance in the U.S. energy sector. But what happens when other countries have no FCPA equivalent and view the matter of disclosure quite differently?

The principle of reciprocity in international relations mandates that favors, benefits, or penalties by one state to the citizens or legal persons of another should be returned in kind, while courts generally act accordingly (i.e., not disparaging foreign laws) under the doctrine of comity. Consequently, the American Petroleum decision warns U.S. regulators that they cannot just arbitrarily place U.S. companies in the position of having to choose between complying with either U.S. or foreign law.

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Ernesto J. Sanchez is an international dispute resolution attorney based in Miami, Florida, senior analyst at the online geostrategic analysis consultancy Wikistrat, and author of The Foreign Sovereign Immunities Act Deskbook, recently published by the American Bar Association. He can be contacted here.