Author: Joshua L. Ray
28 October 2020
4 min read
Last month’s announcement that the US International Development Finance Corporation (DFC) opened an office in Belgrade was no doubt welcome news for the Balkan business community. The relatively new agency, created in 2019 through a merger of the Overseas Private Investment Corporation and several other existing organizations, finances major infrastructure development projects in developing countries. With an overall lending capacity of $60 billion, the DFC was set up to funnel private money to emerging markets using loans, equity investments, and insurance. It also offers credit for small businesses and entrepreneurs.
DFC’s outpost in Belgrade is the first overseas office of its kind and highlights the US government’s keen strategic interest in the region. It comes on the heels of the 2020 Kosovo-Serbia Agreement, an important diplomatic development that signals progress towards resolution of the simmering tension between leaders in Belgrade and Pristina, the capital of the breakaway province. One of DFC’s first priorities will be to support the construction of the “Peach Highway” and other transport links with Pristina, along with various ancillary development projects.1 The Serbian finance ministry also announced that it was in advanced discussions with the DFC on the launch of a $1 billion+ guaranteed loan scheme to help local businesses weather the ongoing pandemic.2
The infusion of cash and US government support creates obvious opportunities for Serbia businesses. At the same time, however, the DFC opens the door for American regulators to extend their already-expansive extraterritorial reach. In other words, DFC money comes with a catch.
Chief among them is the wire fraud statute, a law once described by a US prosecutor as “our Stradivarius, our Colt. 45, our Louisville Slugger, our Cuisinart – and our true love.”3 Prosecutors’ affinity for wire fraud stems from broadly worded prohibitions that allow for it to be adapted to a wide variety of dishonest activities. In a recent decision, United States v. Napout, the US Second Circuit Court of Appeals confirmed that financial misconduct occurring almost entirely abroad can be prosecuted in American courts as wire fraud.4
The specific question in Napout was whether American authorities had the authority to prosecute South Americans for a bribery scheme that took place exclusively in South America. Answering yes, the Second Circuit concluded that as long as a wire fraud scheme involves a wire transmission from, into or through the US that is “essential” and more than “merely incidental” to the overall crime, the extraterritorial application of US law is permissible. As such, the Napout decision means that any overseas fraud that includes a transaction in US dollars or communications with someone located in the US will likely be subject to American jurisdiction. To the extent the DFC is a purported victim or is otherwise utilized in an alleged crime, therefore, wire fraud’s jurisdictional requirement is almost certainly satisfied.
Another important implication from Napout is that the scope of US anti-corruption efforts extends well beyond the bounds of the Foreign Corrupt Practices Act (FCPA). Whereas the FCPA applies only to bribes paid to “foreign officials” by US issuers, domestic concerns or their agents, the “honest services” variant of wire fraud can be used to target companies with no US ties. Moreover, under an honest services wire fraud theory, a bribe need not go to a government official. In Napout, for example, the bribes at issue were paid to executives at FIFA, football’s world governing body. Prosecutors argued that the defendants had consequently deprived FIFA of the honest services of its employees and thereby committed wire fraud under US law.
The key takeaway from Napout is that companies and individuals in the Balkans must take caution when participating in DFC-financed projects. Even if, as expected, DFC funding comes in the form of local currency, because its ultimate source is the US, American laws must be adhered to. This is especially so in light of the US/Serbia extradition treaty that came into force in April 2019.5 Unlike US extradition treaties with other countries in Europe, the one with Serbia states that “[e]xtradition shall not be refused based on the nationality of the person sought”—i.e., Serbian authorities can be obligated to turn over Serbian nationals to stand trial (and potential serve prison sentences) in the US. American authorities have already put this treaty to use and are currently in the process of extraditing eleven Serbs for an alleged binary options fraud scheme.6
This development, combined with the presence of an FBI attaché office in Belgrade, underscores the resources available to US prosecutors to go after Balkan-based defendants who may be tempted to access or use DFC’s largesse in a way that could be viewed as improper. At a minimum, this means that all proposed transactions involving DFC money should be first subjected to a thorough analysis under US law. To avoid an outcome like that in Napout (where the defendants both received multi-year prison sentences), it is obviously always wise to identify and resolve potential US regulatory issues at the outset, rather than be forced to defend criminal charges in an American courtroom.
Joshua Ray represents individuals and corporates in complex investigations, prosecutions and regulatory actions regarding market manipulation and multijurisdictional matters involving fraud, bribery and money laundering.