WHEN CONSUMER FRAUD CROSSES THE INTERNATIONAL LINE: THE BASIS FOR EXTRATERRITORIAL JURISDICTION UNDER THE FTC ACT[dagger]

Article excerpt

INTRODUCTION.......... 294

I. BACKGROUND AND HISTORY OF FTC CONSUMER FRAUD ENFORCEMENT ............. 297

A. Origins of the Consumer Fraud Provisions of the FTC Act........................ 297

B. Deceptive Versus Unfair Practices.......... 299

C. FTC Antifraud Enforcement Methods.......... 301

II. CASES IN WHICH THE FTC HAS EXERCISED EXTRATERRITORIAL JURISDICTION .... 303

A. Branch v. FTC.......... 304

B. Post-Branch Decisions.......... 307

III. NIEMAN: THE ELEVENTH CIRCUIT's WHOLESALE REJECTION OF THE EXTRATERRITORIALITY OF THE FTC ACT .......... 308

IV. THE FTC ACT OVERCOMES THE PRESUMPTION AGAINST EXTRATERRITORIALITY .312

A. The Plain Meaning of the FTC Act Provides for Extraterritorial Application.......... 312

B. The Court's Decision in Aramco Tends to Support, Not Undermine, the Extraterritorial Application of the FTC Act.......... 313

C. An Apt Analog: The Antifraud Provisions of the Exchange AcI................. 316

V. APPLYING THE "CONDUCT" AND "EFFECTS" APPROACHES TO THE FTC ACT ........ 317

A. The "Conduct" Approach.......... 318

B. The "Effects"Approach.......... 322

CONCLUSION.......... 328

INTRODUCTION

Over the past decade, the globalization of commerce and the Internet in particular have exponentially accelerated a process that began more than a century ago: the bridging of the commercial gap between buyers and sellers from far-flung points of the globe.' As transactions between businesses and consumers increasingly span borders, the pool of potential victims for perpetrators of consumer fraud has likewise expanded.2 Indeed, both fraud against U.S. consumers by foreign businesses and fraud against foreign consumers by U.S. businesses have risen dramatically over the past decade, with the Internet playing a growing role in cross-border fraud.3 At the same time, U.S. courts disagree about whether transnational fraud is within the reach of the consumer fraud statutes that have been enforced for over half a century by the Federal Trade Commission ("FTC"), the United States' principal consumer protection agency.

Though the technology has changed, modem consumer frauds bear a striking resemblance to those of the past, relying, as always, on misrepresentation and deception. Recent examples of cross-border fraud include an American company that operated a "massive illegal pyramid scheme," conning consumers around the world out of $175 million with false promises of quick riches through work-at-home business opportunities;4 a Swiss company that sold U.S. consumers dietary supplements and electronic devices, claiming that these products would cure terminal cancers and AIDS;5 and a British operation that sold Internet domain names with bogus suffixes such as ".usa" and ".brit" to consumers around the world, in a fraudulent effort to capitalize on increased patriotic sentiment after September 11th.6 In a more elaborate scheme, a Canadian company targeted U.S. residents with offers for pre-approved credit cards with credit limits of $2,000 or $2,500, in exchange for an advance fee of $189 to $219.7 The victims, most of whom had poor credit history, agreed to have the money debited from their bank accounts, but never received the promised credit cards.8

In November 2005, the FTC brought suit against a Costa Rican operation that used "Voice over Internet Protocol (VoIP) services, shell corporations, aliases, and shills to con U.S. consumers into investing in a bogus business opportunity."9 Promoting their coffee display rack franchises through classified ads and the Internet, the defendants claimed that, for a set fee ranging from $15,000 to $85,000, they would provide prospective franchisees with everything needed to set up a franchise, including pre-arranged retail locations at which to set up their coffee display racks. From their base in Costa Rica, the defendants used VoIP technology to make it appear as if they were operating out of Las Cruces, New Mexico, where their website claimed they had been in business since 1994. …