The World in U.S. Courts: Winter 2018 - White Collar Criminal Law/Money Laundering
October.27.2017
The defendant in this criminal case, Sushovan Hussain, sought to dismiss wire fraud charges on grounds that they reflected an impermissibly extraterritorial application of the Wire Fraud Act, 18 USC 1343. The case arose out the alleged fraud on California-based Hewlett-Packard Corporation in connection with its acquisition of a UK software provider. Hussein was the UK company’s Chief Financial officer. Acknowledging that the law was unsettled and that binding precedent in the Ninth Circuit Court of Appeals and the US Supreme Court was “somewhat in tension,” the Court upheld the indictment.
The Court began by observing that the determination whether a federal statute applies to a cross-border transaction involves a two-step process. First, the statute may apply without further analysis if it contains a clear indication of intent to be applied extraterritorially. If no such intent is found, a court must then determine the “focus” of the statute, and determine whether US domestic facts relevant to this focus are sufficient to establish a violation. The Court found that Section 1343 contained no indication of extraterritorial application. But the Court noted that disagreement existed as to the “focus” of the statute. Some courts (and the Government in this case) promoted a “bright line” test in which any use of a US “wire” would trigger application of the statute. Other decisions looked at the geographic scope of the broader scheme to defraud and considered multiple factors. The Court ultimately expressed its view that the most appropriate test was a “holistic” one that centered on the fraud, and it believed this approach more consistent with the most recent decisions of the US Supreme Court. But the Court also acknowledged earlier appellate precedent suggesting that the “focus” of the Wire Fraud Statute was the “use of the wires.” Because the later Supreme Court decisions did not “necessarily compel” a different result, the Court considered itself bound by the “bright line” test focusing on whether US means of communication had been employed in the commission for a fraud anywhere in the world. That test was easily satisfied by the indictment, which was based on alleged misrepresentations made by Hussein “in e-mails, press releases, phone calls, and videos transmitted within the Northern District of California.”
Hussein was also charged with conspiracy to commit wire fraud, in violation of 18 USC 1349. The Court observed that the extraterritorial reach of an “ancillary” violation like conspiracy should follow that of the underlying offense, and so found that Section 1349 could only apply domestically. It also cited precedent suggesting that the “focus” of a conspiracy statute is the “object of the conspiracy, and thus that the conspiracy is domestic so long as the object, if executed, would constitute a domestic violation of the underlying statute.” Because the “object” of the conspiracy was the domestic wire fraud already found to have been properly charged, the Court rejected Hussein’s effort to dismiss the charge of conspiracy.
Finally, the Court considered Hussein’s argument that several counts of the indictment alleging criminal use of US wires in defrauding ex-US holders of the UK company’s stock violated the Due Process Clause of the US Constitution because they had insufficient contacts with the US. The Court disagreed, noting that the alleged violations had been found to be US domestic, and that US wires had also been used.