Does the Foreign Corrupt Practices Act of 1977 (“FCPA”) empower the U.S. to prosecute an individual for foreign bribery if the bribes benefit a U.S. firm but the person is a foreign national employed by a foreign entity who does nothing in the furtherance of the crime while in U.S. territory? That was the central question in U.S. v. Hoskins, an appeal recently decided by the Second Circuit (Hoskins II). Cases like this will often turn on whether the individual qualifies as an “agent” of the U.S. firm, which can be a difficult question. The objectives of anti-bribery law would be better served if the statute were amended to focus on other factors.
The Second Circuit’s decision arose from the prosecution of Lawrence Hoskins, a U.K. national employed by the U.K. subsidiary of Alstom S.A., a multinational company headquartered in France, between 2001 and 2004. Hoskins was assigned to work in Alstom’s French subsidiary in a department charged with supporting other units of the organization. His formal responsibilities included oversight of operational units’ selection of third party consultants and approval of key commercial terms of those consultants’ engagements In a 2013 indictment the U.S. government alleged that Hoskins helped employees of other Alstom subsidiaries, including a U.S. subsidiary we can refer to simply as API, engage local consultants to pay bribes to obtain a contract to build a power plant in Indonesia. The indictment included substantive FCPA and money laundering charges as well as related conspiracy charges. The central question was whether the FCPA covered Mr. Hoskins’s activities. The FCPA’s anti-bribery provisions apply to 1) issuers of securities registered in the U.S., 2) “domestic concerns” (basically, U.S. firms, nationals or residents) that are not issuers, 3) people other than issuers or domestic concerns who engage in prohibited activity while in U.S. territory, and 4) officers, directors, employees, agents and, in certain cases, shareholders of the first three types of actors. A foreign individual who does not commit any relevant act in U.S. territory is only covered under the fourth category. However, the U.S. Department of Justice has long taken the position that such individuals can also be prosecuted for conspiring to violate or aiding and abetting a violation of the FCPA.
In a notable interlocutory ruling, which was affirmed by the Second Circuit (Hoskins I), the district court judge held that a foreign national who did not do anything in U.S. territory and was not directly subject to the FCPA could not be liable for conspiring to violate or aiding and abetting a violation of the FCPA. Consequently, a key issue at Hoskins’s subsequent trial – which did not begin until October 2019 – was whether the FCPA applied to him directly as an “agent” of a “domestic concern,” on the theory that while helping API employees to pay bribes he acted as an agent of API.
The jury found Hoskins guilty of all but one of the FCPA and money laundering charges. However, the trial judge entered an acquittal on the FCPA charges on the grounds that there was insufficient evidence that Hoskins qualified as an agent of API. Naturally, the government appealed from this decision. Hoskins cross-appealed from the district court’s decisions that there was no violation of his statutory and constitutional rights to a speedy trial, that venue was proper and that he had not withdrawn from the conspiracy.
In the Second Circuit, the panel unanimously agreed to dismiss the cross-appeal but split on the issue raised by the government’s appeal, namely, whether Hoskins qualified as an agent. The parties agreed that the common law definition of agency applied. On that definition, an agency relationship arises when parties agree that the agent will act on the principal’s behalf and subject to the principal’s control. Writing for the majority, Judge Pooler accepted the conclusion that Hoskins did not qualify as an agent because API did not control his activities, in the sense of being able to hire or fire him or to determine his compensation. In dissent, Judge Lohier thought that API had sufficient control over Hoskins because employees of API controlled the undertaking in which he participated, namely the selection of consultants for the power plant project. The dissent seems to have the better of this argument. However, the evidence of the other key element of agency, namely, that Hoskins had been given authority to act on behalf of API, was slim. All in all, the issue of whether there was an agency relationship seems like a close call.
In an ideal world, the question of whether Hoskins was an agent would not have been dispositive. Authority and subjection to control are suitable criteria for determining whether an individual is someone a firm can plausibly prevent from engaging in misconduct. Consequently, it makes sense for agency to be a prerequisite to holding a firm vicariously liable for an individual’s actions. By contrast, the presence of an agency relationship should not be determinative of whether the U.S. can prosecute a foreign individual.
As I have argued elsewhere, the ability of the U.S. to assert criminal jurisdiction over a foreign national should turn on factors such as effectiveness, efficiency, legitimacy and due process. In practice, the first two factors will often weigh in favor of U.S. enforcement. When U.S. prosecutors target a bribery scheme led by employees of a U.S. firm it often will be cost-effective for them to proceed simultaneously against collaborators overseas, even if they are employed by other entities and regardless of their position on an organizational chart.
Prosecution by the U.S. of a foreign national like Hoskins also might be compatible with legitimacy and due process. These factors require a nexus between the defendant’s misconduct and the United States, as well as reasons for the defendant to be aware of that nexus so that they can reasonably anticipate being subject to U.S. law. It will be relatively easy to justify U.S. prosecution of an individual who participates in a scheme which is designed to benefit a U.S. firm, has the potential to adversely affect U.S. competitors and involves the kind of hard-core bribery that is universally condemned. The situation will be different though if any of these factors are missing, or if countries with a closer connection to either the defendant or the misconduct object to U.S. prosecution. (In the case of Hoskins, those countries would the U.K., France and Indonesia.) Again though, the defendant’s precise role in the organizational hierarchy, of either the U.S. firm or the specific criminal undertaking, seems beside the point.
The best way to address the issue raised by cases like Hoskins is through a legislative amendment (a point made by Judge Lynch in a concurring opinion in Hoskins I). Naturally, judges in future cases could reject Hoskins I or interpret the term “agent” more broadly than the court in Hoskins II, but in my view neither of those responses would be compatible with standard principles of statutory interpretation and legality. A better solution would be to amend the FCPA to apply to “affiliates” rather than “agents” of issuers and domestic concerns and then define the term affiliate to capture agents or employees of related companies who conspire with employees or agents of the issuer or domestic concern. To ensure due process, the government should bear the burden of establishing that an affiliate was aware of both the nexus between their conduct and the United States and the fact that their conduct violated U.S. law. The government should also bear the burden of overcoming any other due process concerns raised by the defendant.
The saga of Mr. Hoskin illustrates the drawbacks and benefits of the government’s stated policy of prioritizing the prosecution of individuals involved in corporate crime. Individual defendants in white collar cases tend to defend themselves vigorously. By pursuing them the government risks not only becoming entangled in lengthy and presumably expensive proceedings but also generating adverse precedents. The upside of a case like Hoskins is that it provides an opportunity to reconsider and improve the U.S. anti-bribery regime.
Kevin E. Davis is the Beller Family Professor Business Law at New York University School of Law.
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