by Kara Brockmeyer, Colby A. Smith, Bruce E. Yannett, Philip Rohlik, Jil Simon, and Anne M. Croslow
I. Introduction
On August 24, 2018, the Second Circuit handed down its long-awaited decision in United States v. Hoskins, [1] addressing the question of whether a non-resident foreign national can be held liable for violating the FCPA under a conspiracy theory, where the foreign national is not an officer, director, employee, shareholder or agent of a U.S. issuer or domestic concern and has not committed an act in furtherance of an FCPA violation while in the U.S. In a word, the court held that the answer is “no,” concluding that the government may not “expand the extraterritorial reach of the FCPA by recourse to the conspiracy and complicity statutes.”[2] The court added, however, that the same foreign national could be liable as a co-conspirator if he acted as an agent of a primary violator.
While the ruling is undoubtedly an important curb on some potential sources of liability for foreign entities and individuals, the availability of agent liability may limit the practical impact of the decision for many non-resident foreign nationals. Unfortunately, the decision did not address the scope of agent liability under the FCPA, leaving that issue open. As a result, further development in this and subsequent cases — especially with respect to the meaning of “agency” under the FCPA — will necessarily be required before the full impact of the Hoskins ruling becomes clear. However, the decision is likely good news for foreign companies that enter into joint ventures with U.S. companies and some other classes of potential defendants, as it may be harder for the U.S. government to charge them with FCPA violations.
II. Factual and Procedural History
In December 2014, the U.S. Department of Justice (“DOJ”) reached a settlement with French conglomerate Alstom S.A. and several of its subsidiaries regarding improper payments to secure a $118 million power project in Indonesia.[3] The DOJ also brought charges against a number of individuals, including Lawrence Hoskins, a British national who was an officer of a British subsidiary of Alstom. All of the other individuals settled;[4] Hoskins did not.
The FCPA prohibits corruptly offering, giving, promising to give, or authorizing the giving of anything of value to any foreign official in order to assist in obtaining or retaining business. The statute specifically sets out three categories of entities or persons to which it applies: (1) Section “dd-1” applies to issuers of securities in the U.S., as well as their officers, directors, shareholders, employees and agents; (2) Section “dd-2” applies to “domestic concerns” (i.e., U.S.-based companies, citizens or residents), as well as their officers, directors, shareholders, employees and agents; and (3) Section “dd-3” applies to any foreign entity or non-U.S. person (as well as their officers, directors, shareholders, employees and agents) who takes steps in furtherance of a corrupt payment “while in the territory of the United States.”[5]
The Third Superseding Indictment filed against Hoskins charged him with eight counts of violating the FCPA and four counts of violating the anti-money laundering laws. Hoskins moved to dismiss Count One of the indictment, which alleged that he had conspired with Alstom U.S. and others to violate both Sections dd-2 (domestic concerns) and dd-3 (foreign nationals operating within the U.S.) of the FCPA. Hoskins argued that he could not be held liable for violating the FCPA under a conspiracy theory because he was a foreign national who did not meet the definition of a domestic concern and had not himself acted while within the territory of the U.S.
The U.S. District Court for the District of Connecticut granted Hoskins’s motion to dismiss the portion of Count One that alleged conspiracy,[6] holding that a non-resident foreign national cannot be charged with conspiracy to violate the FCPA unless the government could show that the defendant (a) acted as an agent of a domestic concern (under Section dd-2) or (b) committed the acts in question while physically present in the U.S. (as Section dd-3 requires).[7] The district court, however, allowed the Government to proceed to trial with the opportunity to prove that Hoskins was primarily liable as an agent of the U.S. subsidiary of Alstom. After its motion for reconsideration was denied in March 2016, the DOJ appealed to the Second Circuit and oral argument was heard on March 2, 2017.[8]
III. The Second Circuit’s Decision
The issue presented to the Second Circuit was whether the government could use conspiracy to charge a defendant with violating the FCPA, even if he was not in the category of persons directly covered by the statute.[9] In an opinion by Judge Rosemary Pooler, joined by Chief Judge Robert Katzmann and Judge Gerard Lynch, the court affirmed in part and reversed in part the district court’s decision. The Second Circuit upheld the district court’s dismissal of part of Count One, holding the FCPA’s “carefully-drawn limitations” do not permit the government to use conspiracy or aiding and abetting theories to charge a foreign national who is neither an employee nor an agent of a domestic concern and did not himself act while within the territory of the U.S.[10] However, the Second Circuit also held that the conspiracy count could proceed because Count One alleged that Hoskins was an “agent” of the U.S. company.
Judge Pooler’s 73-page opinion carefully analyzed the Supreme Court’s 1932 decision in Gerbardi v. United States[11] and the Second Circuit’s 1987 decision in United States v. Amen,[12] both of which addressed statutes where Congress distinguished between those who could be charged with a violation and those who could not.[13] Based on those cases, the Second Circuit concluded that “conspiracy and complicity liability will not lie when Congress demonstrates an affirmative legislative policy to leave some type of participant in a criminal transaction unpunished.”[14]
The court then considered the legislative history of the FCPA in evaluating whether Congress had intended to limit liability to a clearly defined group of potential defendants. The court evaluated the history of the original statute and a series of amendments in 1998 that added Section dd-3 and were designed to conform the FCPA with the requirements of the Organization for Economic Cooperation and Development’s (OECD) anti-corruption convention.[15] Based on this analysis, the court concluded that the FCPA evinces “an affirmative Congressional intent to exclude” from liability persons other than those specifically referenced in the text of the statute.
In his concurring opinion, Judge Lynch reinforced this conclusion by noting that it has become commonly accepted since the Fifth Circuit’s ruling in United States v. Castle[16] that the recipients of bribe payments could not be charged with a violation of the FCPA, because “Congress was concerned about intruding too far into foreign sovereignty.”[17] Judge Lynch wrote that though it was evident that the bribe recipient is a necessary participant in the violation, and could easily be charged as a conspirator, Congress made clear that the FCPA should not reach that far. He took this as another reason to heed the specific delineations in the statute.
The court also considered whether the Supreme Court’s recent pronouncements on the extraterritorial application of U.S. laws supported the same conclusion. Analyzing both Morrison v. Nat’l Bank of Australia, Ltd.[18] and RJR Nabisco, Inc. v. European Cmty.,[19] the court determined that “[b]ecause some provisions of the FCPA have extraterritorial application, ‘the presumption against extraterritoriality operates to limit th[ose] provision[s] to [their] terms.’”[20] As Judge Lynch noted in his concurring opinion, the FCPA did “not evince an effort by the United States to rule the world, but rather an effort to enforce American law against those who deliberately seek to undermine it.”[21] He added: “In adopting the FCPA, Congress sought to criminalize wrongful conduct by Americans and those who in various ways work with Americans, while avoiding unnecessary imposition on the sovereignty of other countries whose traditions may differ from our own.”[22]
Importantly, the Second Circuit did not take the opportunity to hold that conspiracy theory can never be used in FCPA cases. In fact, the Court explicitly held that if Hoskins is ultimately shown to have acted as an agent of a domestic concern, then he can be held liable under a conspiracy theory for the actions of his co-conspirators (namely, the U.S. subsidiary and the other individuals who were employees and agents).[23] Nor did the Court discuss what evidence would be required to prove that Hoskins – the U.K. employee of a U.K. sister company to Alstom U.S. – actually acted as an agent of the U.S. subsidiary, stating in a footnote that they “express no views on the scope of agency under the FCPA.”[24]
IV. Takeaways
Narrow practical impact for many foreign nationals: With Hoskins, the Second Circuit has limited the FCPA’s extraterritorial reach somewhat, but has left the door open for conspiracy claims against a non-resident foreign national as long as the government also establishes that the foreign national is an agent of an issuer, domestic concern, or another foreign national who acted in furtherance of a bribe payment in the territory of the U.S. The number of individuals who fall in the group affirmatively beyond the scope of the FCPA after Hoskins may end up being relatively small.
Increased focus on the scope of “agency”: Left unresolved by this decision is whether Hoskins was, in fact, an agent of Alstom’s U.S. subsidiary. The contours and scope of agency in the FCPA context will likely be the subject of significant litigation going forward. And while there are specific legal elements required for a showing of agency, it is an intensely factual inquiry, which could make it more difficult (but not impossible) to persuade a court to address the issue at the motion to dismiss stage. It could be some time before clarity is provided by subsequent rulings.
Potential implication for foreign joint venture partners: One place where the Hoskins decision may have significant impact is on the U.S. government’s ability to reach the conduct of foreign companies that enter into joint ventures with U.S. issuers or companies. Historically, DOJ charged the foreign JV partners with conspiracy to violate the FCPA.[25] However, the Second Circuit’s decision in Hoskins would clearly preclude this, and require the government to prove that the foreign national acted as an agent of a U.S. issuer or domestic concern. Given the complexity of international JV structures, it likely will be difficult for the government to prove that a JV partner acted as an agent of its U.S. JV partner rather than of the JV itself. Moreover, given the uncertainty in federal law as to the meaning of “agency” and the fact-specific nature of that determination, contracting parties would be well advised to include contractual provisions specifying their intent not to form an agency relationship. Although courts will look at the effective rather than the formal relationship between the parties, such contractual language is relevant evidence for a factual determination.
What’s next for Hoskins?: It remains to be seen whether the government will petition for rehearing en banc or even appeal the decision directly to the Supreme Court. While the practical impact of this ruling may be limited, the government may pursue review in an effort to overturn this decision, which essentially requires a showing of agency in order to hold certain non-resident foreign nationals liable directly or as co-conspirators for alleged FCPA violations. If the government does not seek further appellate review, it will be interesting to see whether and how it establishes that Hoskins was an agent of the U.S. subsidiary.
Foonotes
[1] No. 16-1010-cr, 2018 WL 4038192 (2d Cir. Aug. 24, 2018).
[2] Slip Op. at 70.
[3] See “The Year 2015 in Anti-Bribery Enforcement: Are Companies in the Eye of an Enforcement Storm,” FCPA Update, Vol. 7, No. 6 at 22 (Jan. 2016). The DOJ alleges that in his capacity overseeing the Alstom U.S. unit’s hiring of consultants, Hoskins authorized payments to consultants in connection with a bribery scheme to secure a $118 million construction project for Indonesia’s state-owned electricity company for an Alstom U.S. subsidiary. Hoskins is alleged to have authorized these payments to Indonesian government officials retained by the company as consultants for the purpose of paying bribes to the Indonesian government.
[4] See United States v. Frederic Pierucci, Document No. 46, Plea Agreement, Case No. 3:12-cr-238(JBA) (filed July 29, 2013); United States v. William Pomponi, Document No. 138, Plea Agreement, Case No. 3:12-cr-00238(JBA) (filed July 17, 2013); United States v. David Rothschild, Document No. 8, Plea Agreement, Case No. 3:12-cr-00223(WWE) (filed Nov. 2, 2012).
[5] 15 U.S.C. §§ 78dd-1, 78dd-2, 78d-3.
[6] See FCPA Update, Jan. 2016, supra n.3 at 25-26.
[7] United States v. Hoskins, No. 3:12-cr-238-JBA, 2016 WL 1069645 (D. Conn. March 16, 2016).
[8] United States v. Pierucci (Hoskins), Case 16-1010, Notice of Hearing Date (2d Cir. Jan. 13, 2017).
[9] Slip Op. at 4 n.1. The Court assumed, for purposes of its analysis of conspiracy liability, that Hoskins was not an agent of Alstom U.S.
[10] Slip Op. at 2.
[11] 287 U.S. 112 (1932).
[12] 831 F.2d 373 (2d Cir. 1987).
[13] In Gerbardi, the ruling was that the woman who had been transported across state lines – whether voluntarily or not – could not be a co-conspirator to violate the Mann Act’s prohibition against transporting women across state lines for certain purposes, and in Amen the ruling was that a so-called “kingpin” statute that was designed to mete out additional punishment to the head of a criminal enterprise could not become the basis for a conspiracy charge against underlings in the criminal enterprise. See I Slip Op. at 22-28.
[14] Slip Op. 28.
[15] Id. at 41-65.
[16] 925 F.2d 831 (5th Cir. 1991).
[17] Con. Op. at 9.
[18] Slip Op. at 66-69.
[19] 136 S. Ct. 2090 (2016).
[20] Quoting both RJR Nabisco, 136 S. Ct. at 2102, and Morrison, 561 U.S. at 265.
[21] Con. Op. at 15.
[22] Id. at 11.
[23] Slip Op. at 71.
[24] Id. at 4 n.1.
[25] See, e.g., United States v. JGC Corp., Document No. 4, Deferred Prosecution Agreement at ¶ 1, Case No. 4:11-cr-00260 (S.D. Tex. Filed April 6, 2011) (acknowledging charge of conspiracy with domestic concern to violate the FCPA).
Kara Brockmeyer and Colby A. Smith are partners in the Washington, D.C. office; Bruce E. Yannett is a partner in the New York office; Philip Rohlik is a counsel in the Shanghai office.; and Jil Simon and Anne M. Croslow are associates in the Washington, D.C. office of Debevoise & Plimpton LLP.
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