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Government Presses Extraterritoriality of Wire Fraud Statute

In a recent brief to the Ninth Circuit Court of Appeals, the government argues that the federal wire fraud statute applies extraterritorially. This is yet another avenue through which federal authorities seek to acquire jurisdiction over conduct occurring outside the United States, particularly where the victims are US nationals, including corporations, or are located in the United States.

In its submission to the court the government maintains that the federal Wire Fraud Statute, 18 USC § 1343, gives federal jurisdiction to prosecute fraud occurring outside of the United States if US wires are used. With the rate of globalization and interconnectedness, the type of conduct that could subject foreign nationals to US jurisdiction would seem limitless. Each violation of the federal Wire Fraud Statute carries a penalty of up to twenty years in prison.

Hussain Case in Ninth Circuit

The case at issue, U.S. v. Hussain, arises out of  acquisition of a British software company. Defendant Sushovan Hussain, a British national and the software company’s Chief Financial Officer, was convicted in a California federal court of fourteen counts of wire fraud. According to the government, Hussain was based in Britain, but used email, press releases, phone calls, and videos to misrepresent the financial health of the company to investors in California. The loss was $8.8 billion.

The government’s brief cites to the controlling Supreme Court decision on the extraterritorial application of federal law, RJR Nabisco, Inc. v. European Comm. In RJR Nabisco, the Supreme Court held that federal law applies extraterritorially when “the statute gives a clear, affirmative indication that it applies extraterritorially.” If there is no such “clear, affirmative indication,” there must be sufficient US-based conduct such that “the case involves a domestic application of the statute.”

Government’s Position on Extraterritoriality

On appeal Hussain argues that his conviction constitutes an impermissible extraterritorial application of the wire fraud statute. The main thrust of the government’s opposition is that the transmission of misrepresentations via US wires coupled with the victims of the fraud being located in the United States constitutes domestic application of the statute. Citing Ninth Circuit precedent in United States v. Garlick, the government argues that “‘the focus of the mail and wire fraud statutes is upon the misuse of the instrumentality of communication,’ not the overall fraud scheme.” Thus, according to the government, “when defendants execute a wire-fraud scheme by domestic interstate wires . . . prosecuting the scheme does not involve extraterritorial application of the statute—even if the scheme involved some foreign conduct.”

Alternatively, the government argues that the statute applies extraterritorially. According to the government, the statute’s reference to “foreign commerce[,]” coupled with the statute’s context—without explaining what that context is—“reflects Congress’s extraterritorial intent.” In support of its position, the government cites  U. S. v. Georgiou from the Third Circuit holding that the statute applies extraterritorially.  In Georgiou, the court upheld the conviction of foreign individuals who used brokerage accounts in Canada, the Bahamas, and Turks and Caicos to manipulate the price of publicly-traded companies in the United States, resulting in over $55 million in losses.  Some of those manipulative trades occurred in the United States. Thus, the Third Circuit case and Hussain are quite similar in that a foreign fraud used US wires to cause losses in the United States.

Hussain’s Response

Citing Supreme Court and Ninth Circuit precedent, Hussain responds that the reference to “foreign commerce” does not defeat the presumption against extraterritoriality. Hussain argues Georgiou “is an outlier and irreconcilable with binding Supreme Court decisions.”

So What?

The government’s position in this case indicates that the government continues to seek ways to prosecute foreign conduct that has at least some connection with the United States, particularly where the victims of the foreign criminal conduct are US nationals. As another example of this trend, the 2016 amendments to the Anti-Terrorism Act permit US jurisdiction for civil cases against foreign persons and organizations who have been found to be sponsors of terrorism. Thus, foreign corporations and business leaders should exercise increased diligence to ensure they understand and appropriately manage their legal exposure to both criminal and legal liability in the United States.

Updates Coming

The Ninth Circuit likely will hear oral arguments in the case in the summer. We will continue to monitor and report developments in this case.

Co-Authored by Dimitar Georgiev

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 51

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About this Author

Ayako Hobbs Litigation Attorney Squire Patton Boggs Cleveland, OH
Senior Attorney

Ayako provides litigation counsel to clients across a number of industries, where her practice focuses on assisting clients with contractual matters and litigating complex commercial disputes. Ayako has experience in supply chain management, regulatory compliance, attorney ethics, and government investigations. Her government investigations practice involves conducting internal investigations abroad and defending clients in enforcement matters related to international economic sanctions. 

Ayako's criminal defense and investigations practice involves representing public and private...

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Thomas E. Zeno, Squire Patton Boggs, Healthcare Fraud Lawyer, Economic Crimes Attorney
Of Counsel

Thomas Zeno has more than 25 years of experience in the US Attorney’s Office for the District of Columbia. During that time, Tom investigated and prosecuted economic crimes involving healthcare, financial institutions, credit cards, computers, identity theft and copyrighted materials. As the office’s Healthcare Fraud Coordinator for the last eight years, Tom supervised investigation strategies of agents from the Federal Bureau of Investigation, the Department of Health and Human Services, the Drug Enforcement Administration and the Medicaid Fraud Control Unit regarding healthcare offenses. He also served as the liaison with the office’s civil division on joint proceedings. In addition, Tom served for several years as the Executive Assistant US Attorney for Operations, where he helped supervise the criminal division of the office.

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