Cloud Computing and Unexpected FCPA Jurisdiction

Note: This story has been updated for clarity.

A recent opinion from the Southern District of New York interpreting the “use of instrumentalities” under the Foreign Corrupt Practices Act (FCPA), has opened the door for the United States federal judiciary to exercise jurisdiction over unexpected volumes of Internet communication, even when the communication both originates and terminates outside the physical jurisdiction of the U.S.

In a Memorandum and Order issued in Securities and Exchange Commission v. Straub (S.D.N.Y, February 8, 2013), District Court Judge Richard J. Sullivan opined on the “issue of first impression” of the elements of use of “mails,” “means,” or “use of an instrumentality of interstate commerce” in the context of a FCPA claim. In Straub, the SEC alleged that individual defendants, who are principals of Magyar Telekom PLC, a Hungarian telecommunications company, bribed public officials in Macedonia. The SEC asserted that the FCPA was violated in part based upon emails sent from Hungary to Macedonia. Specifically, the SEC claimed that the element of the FCPA that requires use of instrumentalities of interstate commerce was satisfied by sending these emails because they were “routed through or [had] been stored on network servers located within the United States.” Judge Sullivan agreed with the SEC and concluded that the allegation that emails “sent from locations outside the United States but routed through and/or stored on network servers located within the United States” was a sufficient allegation to satisfy the “use of instrumentality of interstate commerce” element of an FCPA claim.

The seemingly logical inclusion of data flowing through or stored on networks and computers located in the U.S. as “use of an instrumentality of interstate commerce” inadvertently opens the door to unanticipated volumes of Internet communication qualifying as the use of an instrumentality of interstate commerce under the FCPA (and perhaps other statutes that include the use of an instrumentality of interstate commerce as an element) based on the increasing use of cloud computing. The Straub opinion may subject persons who inadvertently use United States servers and networks via cloud computing while conducting otherwise wholly-foreign communications to the jurisdiction of the court under the Straub analysis.

Users of Online Services May Have No Idea Where their Data is Actually Located