HSE University Anti-Corruption Portal
The Rafoi Case: Is It a New Sign of a Loosening U.S. Extraterritorial Law Enforcement Grip?
Natalia Gorbacheva

A U.S. court has ruled again that the charges of corruption and money laundering against a foreign citizen are unfounded.


The Rafoi case

In late 2021, the United States District Court for the Southern District of Texas granted a motion to dismiss charges brought by the U.S. Department of Justice (DOJ) against Daisy Teresa Rafoi-Bleuler.

Ms Rafoi, a citizen of Switzerland and partner in a Swiss Wealth Management firm, was accused of having violated the U.S. Foreign Corrupt Practices Act (FCPA) and the Money Laundering Control Act (MLCA) under the large-scale investigation into the illicit activities related to Petróleos de Venezuela S.A. (PDVSA)*, Venezuela’s state-owned energy company.

In particular, according to the DOJ, Ms Rafoi and other codefendants, Paulo Jorge da Costa Casquiero-Murta and Nervis Villalobos Cardenas, assisted the companies willing to conclude lucrative contracts with PDVSA in bribing the officials of the state-owned company and its subsidiaries and provided support to the relevant officials in laundering the proceeds of corruption through her bank accounts in Switzerland, Curaçao and Dubai.

In its charges, the DOJ proceeded from the assumption that natural persons who are not only U.S. citizens/residents but also “officers, directors, employees, or agents” of American issuers or companies registered or conducting their main activities in the U.S. territory, as well as agents of other defendants who are U.S. citizens/residents (i.e. the agents of the companies or natural persons directly subject to the FCPA enforcement) fall under the FCPA extraterritorial jurisdiction. As highlighted in the DOJ documents, Ms Rafoi was an “agent” of a businessman with dual citizenship of the United States and Venezuela in whose interest she laundered proceeds of corruption; furthermore, she acted as an agent of a PDVSA’s wholly owned U.S.-based subsidiary, PDVSA Services, Inc., with whom she communicated via email and other means of interstate commerce located in the United States.

The court ruled that these assertions were unfounded. In particular, it stressed that:

  • criminal charges are insufficient to establish the U.S. jurisdiction: the DOJ should have provided “undisputed evidence of mutual assent and control over the details of the person and agency, such that the principal controls the details over the assignment”. Ms Rafoi could not be considered as an agent of a U.S. subsidiary of PDVSA as she did not work “under the control” of the company, but merely concluded a contract with it to provide certain services based on the arm’s length principle (in contract law, the condition that the parties of a contract are independent and on an equal footing);
  • as a matter of law, the use of “email and other instruments of interstate commerce located in the U.S. territory” does not constitute as such any “direct evidence of an agency relationship”.

The court also found that taking account of the specific facts and circumstances of the case, the meaning of the term “agent” was “unconstitutionally vague”, pointing out that its application to the defendant as a basis for establishing jurisdiction “is such a novel application that no court has interpreted the statute or rendered a judicial decision that fairly discloses the manner in which the term may be applied to establish jurisdiction”. The court stressed that “that fact alone establishes the vagueness of the term”.

After the decision of the District Court the DOJ announced its intent to appeal it to the Fifth Circuit. 

The Hoskins case

There was another high-profile case against a former manager of the French company Alstom** that developed in a similar vein a year before: during the investigation into the unlawful activities of the entity the DOJ brought charges against several natural persons. According to the DOJ, one of the accused, Lawrence Hoskins, had been involved in bribing officials in Indonesia.

Hoskins, as a senior vice-president of Almstom with oversight over projects in Asia, was responsible for selecting and approving agreements with consultants. In this regard, in 2013, the DOJ charged Hoskins with conspiracy to violate the FCPA (18 U.S.C. §371), substantive violations of the FCPA (15 U.S.C. §78dd-2), conspiracy to launder money (18 U.S.C. §956(h)) and money laundering (18 U.S.C. § 1956(a)(2)(A)).

In the subsequent appeals Mr. Hoskins stated that a foreign citizen who was not a U.S. resident and did not conduct any unlawful activities while in the U.S. territory could not be held liable for aiding and abetting or conspiring with the persons subject to the FCPA enforcement. The court agreed with Mr. Hoskins’s argument and pointed that it was possible to charge with conspiracy to commit a crime only a person subject to the provisions on a direct commission of this crime. What is more, the court specified that the DOJ did not provide any evidence that Hoskins had been an agent of the Almstom American subsidiary (i.e. was covered by article 78dd-2 FCPA) or had conducted any unlawful activities while in the U.S. territory (i.e. was covered by article 78dd-3).

Given that the accused had never visited the United States, the prosecutors had to prove that he had acted as an agent of the Almstom subsidiary in the U.S. for him to be subject to the FCPA jurisdiction. Throughout the subsequent proceedings, prosecutors appealed to the fact that although Mr. Hoskins was not employed by Alstom Power Inc., a subsidiary based in Connecticut, he could be considered as its agent with regard to the implementation of a specific project (the Tarahan project, see the note), because he had taken the decision to hire the project consultants subsequently involved in transferring bribes to Indonesian officials.

In spite of the fact that the jury supported the arguments of the DOJ, the court found them unconvincing. It stressed that although there was evidence that the U.S. subsidiary of the company controlled the recruitment of consultants for the corruption scheme, there was no proof that it could control Mr. Hoskins’s actions. As a consequence, the court of appeal dismissed all charges on the FCPA counts and conspiracy to violate the FCPA, upholding, however, the money laundering and conspiracy to commit money laundering charges. Furthermore, the court reduced considerably the sentence: instead of 7 to 9 years of imprisonment requested by the DOJ, Hoskins was sentences to only 15 months in prison.

The U.S. DOJ, disagreeing with the conclusions made by the court, appealed for a second time. The matter is under consideration in the Second Circuit.

What’s next?

It should be highlighted that since the last decision on the Hoskins case was made by the court of appeal, most experts have agreed that it was only a temporary derogation from the aggressive enforcement of jurisdiction by the U.S. DOJ, whereas Hoskins’s acquittal with regard to the FCPA and MLCA violations does not mean that the DOJ will refuse to bring charges against the persons who are foreigners with respect to the United States and have not committed unlawful acts in the U.S. territory based on the fact that they were agents of “issuers” or “national enterprises” (see, for instance,  Shearman & Sterling or Covington & Burling).

The second similar precedent in the Rafoi case lays a solid foundation for the defendants who are not U.S. citizens and have never been in the United States to defend their innocence in the court in the FCPA and MLCA cases where prosecutors do not have direct and convincing evidence that the relevant foreign citizen was acting under the control of American “principals” involved in unlawful activities.

However, neither the Rafoi nor the Hoskins cases have been brought to an end. Therefore, the possibility to further apply the extensive interpretation of the U.S. jurisdiction in the FCPA cases depends directly on the decisions to be taken by the courts of appeal.

UPD. In a decision of August 12, 2022, the Court of Appeals for the Second Circuit dismissed DOJ's appeal, finding the prior court's decision that Hoskins was not guilty of violating the FCPA justified.

* The investigation of a large-scale corruption scheme related to bribery of PDVSA officials has been conducted by the U.S. law enforcement for more than a year: the charges were brought for the first time in 2015 (the ongoing investigation was officially announced in 2017). Since then, the number of lawsuits filed by the U.S. DOJ has only grown: by 2020, the number of accused exceeded 30, many of whom have already pleaded guilty; however, only few of them - both representatives of commercial companies who paid bribes and officials of PDVSA and its subsidiaries who accepted those bribes - have been formally convicted.

The main means used by the participants of the PDVSA corruption scheme to form the fund for subsequently paying bribes was the overestimation of the price of public contracts concluded with PDVSA. The surplus funds were then transferred to officials that were mentioned in the DOJ documents under different code names like the “Pelon” or “Enano” through a network of affiliated companies also by remunerating their bogus services, as well as by covering officials’ travels, entertainment and giving them expensive gifts (alcohol, watches, jewelry, and original works of art).

** Alstom, a French company, accused of bribing officials in different countries to gain public contracts was held liable for violating the FCPA in 2014.

Some of its unlawful activities were related to the bribery of officials in Indonesia in 2002-2004: with a view to winning the contract to participate in the Tarahan project with a total cost of approximately $118 million, Alstom and its partner company Marubeni Corporation bribed employees of an Indonesian state-owned company; to pay bribes, they used intermediaries which were the companies that provided Alstom with consulting services.

Foreign bribery

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