by Ronald Machen, Kimberly Parker, Jay Holtmeier, Erin Sloane, Chavi Keeney Nana, Cadene Brooks, and Kelsey Quigley
Two recent rulings in separate foreign bribery cases highlight the continued impact of individual prosecutions on the interpretation of various provisions of the Foreign Corrupt Practices Act (FCPA). In United States v. Coburn, the government prevailed in its interpretation of the proper “unit of prosecution,” while a recent district court ruling in United States v. Hoskins further constrained the Department of Justice’s (DOJ) ability to prosecute foreign nationals acting outside of the United States. Where higher courts land on the outcome of both of these questions could impact the DOJ’s FCPA charging strategies going forward.
United States v. Coburn
On February 14, 2020, Judge Kevin McNulty of the US District Court for the District of New Jersey ruled that individual emails sent in furtherance of the same foreign bribery scheme are separate FCPA violations, with each email forming the basis for a separate “unit of prosecution.”[1]
Ruling: Individual emails sent and received by defendants can be separately chargeable under the FCPA.
The grand jury indictment charged two former executives of a US technology services company with bribing government officials to secure a building planning permit in India. Each defendant was charged with one count of conspiracy to violate the FCPA and three substantive anti-bribery counts, along with eight non-FCPA counts.[2] The salient part of Judge McNulty’s ruling focused on three emails allegedly sent by Defendant Gordon Coburn in furtherance of the scheme. The indictment charged each of these three emails as a separate substantive FCPA count.
Defendant Coburn moved to dismiss the indictment, arguing in part that the three separate counts were multiplicitous.[3] He argued that Congress passed the FCPA to punish bribery, not the use of email, so the correct “unit of prosecution” should be the payment of a bribe to a foreign official. In the defendant’s view, the interstate emails, which were set forth in the indictment as the basis to satisfy the interstate commerce requirement of the anti-bribery allegations under 15 U.S.C. § 78dd-1, would simply establish a basis for federal jurisdiction over the subsequent bribery conduct, rather than be the proscribed acts themselves.
Judge McNulty disagreed. He ruled that the three separate FCPA charges were not multiplicitous and could stand, taking what he described as “a commonsense look at the nature of the prohibition to discern what [Congress] intended as the unit of prosecution.”[4]
Judge McNulty looked first to the language of the FCPA, observing that the “operative verb” proscribed by the relevant provisions of the statute is “to make use of interstate facilities such as email” because the statute bans making “use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of” an improper payment.[5] He concluded that “the use of the interstate emails is literally the proscribed act.”[6] In doing so, Judge McNulty disposed of the defense’s argument that interstate emails were only a jurisdictional hook, concluding that the use of cross-border email communications to accomplish foreign bribery “bears enough earmarks of wrongfulness to suggest that it is central to the offense, and not a mere jurisdictional appendage.”[7]
Judge McNulty then looked to statutes that he viewed as analogous to the FCPA. He first considered federal mail and wire fraud statutes; as the FCPA is aimed at combating foreign bribery, he reasoned, so are the mail and wire fraud statutes aimed at combating fraud. Under these fraud statutes, it is “well-settled” that each mailing or wire communication can be separately charged. So too the Travel Act, which prohibits acts of interstate travel or use of interstate commerce with the intent to further unlawful activity, and which provides that each act of interstate travel and interstate commerce may be the subject of a separate criminal charge, even if all are done to promote a single unlawful activity.[8] Judge McNulty found that these statutes were analogous and that they confirmed what the language of the FCPA suggested: the proper unit of prosecution is the individual act of making use of interstate facilities—or in other words, Defendant Coburn’s pressing send on each email.
Impact: What will this mean in practice?
As Judge McNulty pointed out, the Third Circuit has yet to weigh in on the correct “unit of prosecution” in an FCPA action, so his ruling could be tested by appellate review. If it stands, however, this ruling could raise the stakes for individuals and corporations accused of FCPA violations. Defendants charged with paying a bribe, effected through the sending and receipt of multiple emails, may now face multiple charges and increased exposure at sentencing. The ruling may give the DOJ and the Securities and Exchange Commission (SEC) increased leverage in settlement negotiations involving individuals as well as companies. In addition, the ruling could mean that two bribery schemes involving similar conduct could potentially result in significantly different charges depending on the number of emails or phone calls made to or from the United States. That said, under the Sentencing Guidelines, multiple charges relating to the same conduct generally are grouped when calculating the sentence, such that the ruling’s impact may not be dramatic in many cases. Similarly, to the extent that penalties in SEC cases typically are driven mostly by disgorgement, the amount of disgorgement also would not likely change based on additional violations charged due to multiple emails.
United States v. Hoskins
Ruling: It is not enough for the principal to control the processes by which a bribe payment is made; the principal must also control the agent in accordance with traditional notions of agency law. The principal and agent must also have agreed that the principal has control of the agent’s actions.
Where the government prevailed in Coburn, however, it suffered another setback in its long-fought battle to convict Lawrence Hoskins on FCPA charges. On February 26, 2020, in the face of a recent jury conviction, Judge Janet Bond Arterton of the US District Court for the District of Connecticut acquitted Hoskins on all FCPA charges, ruling that the government failed to present sufficient evidence to establish an agency relationship where the principal did not exert authority or the ability to control the purported agent, and where the parties lacked an understanding that the principal maintained control over the actions that the principal assigned to the agent.[9] In the rare move of overturning the jury verdict and remanding for a new trial, Judge Arterton concluded that there was “no evidence upon which a rational jury could conclude that Mr. Hoskins” was an agent of a US domestic concern under relevant principles of agency law.[10]
As we previously reported, Hoskins, a UK citizen and former executive of a French power and transportation company, was convicted of engaging in a multibillion-dollar scheme to bribe officials in Indonesia.[11] Hoskins is a foreign national who was working for a non-issuer and who had taken no acts in furtherance of the bribery scheme while in the United States. Nevertheless, the government advanced a case against him on the theory that he was an agent of a domestic concern (a US-based subsidiary).[12] Hoskins was indicted on July 30, 2013, and, on November 8, 2019, was convicted of six counts of violating the FCPA, three counts of money laundering and two counts of conspiracy. He was acquitted on one of the money laundering counts.
Judge Arterton’s February 26 ruling overturning the jury verdict held that the standard for establishing an agency relationship requires (1) the principal’s authority or the ability to control the agent (consistent with traditional notions of agency law), and (2) the parties’ agreement or understanding that the principal has control of the agent’s actions (which introduces a more subjective analysis under agency law). She then ruled that the government failed to meet either requirement.[13]
Among the evidence produced by the government at trial were emails purportedly showing that the subsidiary controlled Hoskins’s actions as an agent. For example, at the direction of the subsidiary, Hoskins reissued revised consultancy agreements based on accepted terms and was instructed to send those agreements to employees of the purported principal.[14] Hoskins also offered his advice or recommendation on payment terms to the subsidiary.[15] According to Judge Arterton, the evidence showed that the US subsidiary controlled the process through which consultants could be engaged and compensated, but it did not control the actions of Hoskins himself.[16] The US subsidiary did not, for example, have the power to fire or demote Hoskins, impact his compensation,[17] terminate his authority to participate in the hiring of consultants for the project or otherwise exert control over his actions.[18] Finally, Judge Arterton rejected the government’s agency theory because it failed to show that Hoskins himself understood the relationship he had with the US subsidiary to be one of an agent and principal.[19]
In overturning Hoskins’s bribery convictions, Judge Arterton concluded that merely exercising control over “‘important elements of’ the broader project” is insufficient to establish an agency relationship if the purported principal lacks interim control over how the individual performs the tasks.[20] Judge Arterton granted Hoskins’s motion for a new trial on the FCPA-related counts on a “conditional” basis if the DOJ appeals this ruling and the acquittal is “later vacated or reversed.”[21]
Impact: What will this mean in practice?
Pending appeal and any adverse ruling by the Second Circuit, this ruling further limits the DOJ’s ability to pursue foreign nationals who are not employees of issuers or domestic concerns. As we have previously reported, a prior Hoskins ruling established that the government could not charge a foreign national (such as Hoskins) as a co-conspirator when he was not otherwise subject to jurisdiction directly.[22] This recent ruling also establishes guardrails around aggressive assertions of the principal-agent relationship by the DOJ (and SEC) in the FCPA context, emphasizing not only the formal principal-agent relationship but also the subjective understanding of the agent as to whether his/her actions were controlled by a particular principal. If sustained on appeal, this ruling, like the one before it, will make it harder for the DOJ to reach certain foreign nationals implicated in bribery schemes in violation of the FCPA when they have not taken clear acts in support of the improper conduct in the United States. Significantly, the ruling also could have implications for companies, not just individuals, where the government seeks to pursue joint venture partners or other noncontrolled entities.
Footnotes
[1] Ruling on Defs.’ Mot. to Dismiss, United States v. Coburn & Schwartz, No. 19-cr-00120 KM (D.N.J. Feb. 14, 2020). Judge McNulty defined the “unit of prosecution” as “the precise act a defendant is prohibited from performing.” Id. at 11.
[2] It is worth noting that one of the defendants challenged two of the three substantive FCPA counts, arguing that he was not referenced in two of the three descriptions in the allegedly inculpatory emails, and therefore the grand jury may not have charged him. Judge McNulty disagreed, ruling that the indictment was clear in showing that the grand jury charged both defendants. Id. at 3–8.
[3] An indictment is impermissibly multiplicitous if it “charges the same offense in two or more counts and may lead to multiple sentences for a single violation.” Id. at 8 (citing United States v. Pollen, 978 F.2d 78, 84 (3d Cir. 1992)).
[4] Ruling on Defs.’ Mot. to Dismiss at 9.
[5] 15 USC § 78dd-1.
[6] Ruling on Defs.’ Mot. to Dismiss at 11.
[7] Id. at 21.
[8] Id. at 15–20.
[9] Ruling on Def.’s Rule 29(c) and Rule 33 Mots., United States v. Hoskins, No. 12-cr-00238 JBA, at 18 (D. Conn., Feb. 26, 2020).
[10] Id.
[11] WilmerHale Client Alert, $1 Billion Ericsson Resolution, Three Jury Verdicts Cap Off Busy Fourth Quarter for US FCPA Enforcement (Dec. 31, 2019).
[12] The government pursued this theory of liability after failing to obtain a conviction on a conspiracy charge. The government claimed it had jurisdiction over Hoskins for conspiring with the subsidiary of the power and transportation company. The Second Circuit Court of Appeals rejected this theory, holding that the government cannot obtain jurisdiction over a foreign individual by charging a conspiracy with individuals acting in the United States if the foreign individual is not otherwise subject to the FCPA. See United States v. Hoskins, 902 F.3d 69, 71 (2d Cir. 2018); United States v. Hoskins, 123 F.Supp.3d 316, 327 (D. Conn. 2015).
[13] Ruling on Def.’s Rule 29(c) and Rule 33 Mots., at 14–18.
[14] Id. at 16.
[15] Id.
[16] Id. at 14–15; see also Johnson v. Priceline.com, Inc., 711 F.3d 271, 278 (2d Cir. 2013) (“In many agreements to provide services, the agreement between the service provider and the recipient specifies terms and conditions creating contractual obligations that, if enforceable, prescribe or delimit the choices that the service provider has the right to make. . . . The fact that such an agreement imposes constraints on the service provider does not mean that the service recipient has an interim right to give instructions to the provider.”) (quoting Restatement (Third) of Agency § 1.01 cmt. f (Am. Law Inst. 2006)).
[17] Id. at 9, 17–18.
[18] Id. at 18; see also Restatement (Third) of Agency § 1.01 cmt. f (Am. Law Inst. 2006) (The “principal’s right of control presupposes that the principal retains the capacity throughout the relationship to assess the agent’s performance, provide instructions to the agent, and terminate the agency relationship by revoking the agent’s authority.”).
[19] Id. at 15–16, 18.
[20] Id. at 6, 15; see also Hollingsworth v. Perry, 570 U.S. 693, 713 (“An essential element of agency is the principal’s right to control the agent’s actions.”) (emphasis added).
[21] Ruling on Def.’s Rule 29(c) and Rule 33 Mots., at 27.
[22] WilmerHale Client Alert, $1 Billion Ericsson Resolution, Three Jury Verdicts Cap Off Busy Fourth Quarter for US FCPA Enforcement (Dec. 31, 2019).
Ronald Machen, Kimberly Parker, Jay Holtmeier and Erin Sloane are partners, Chavi Keeney Nana is counsel, and Cadene Brooks and Kelsey Quigley are associates, at WilmerHale.
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