United States: Second Circuit Limits Government's Ability To Prosecute Foreign Persons And Companies For Conspiracy To Violate The FCPA

On August 24, 2018, the United States Court of Appeals for the Second Circuit issued a significant ruling regarding the reach of the U.S. Foreign Corrupt Practices Act (FCPA) over foreign companies and individuals in United States v. Hoskins, No. 16-CR-1010 (2d Cir. Aug. 24, 2018). In the first appellate court decision to address the question, the Second Circuit held that a nonresident foreign national, who is acting entirely outside the United States and who is not an employee or agent of an American company, cannot be prosecuted for violating the FCPA on a theory of conspiracy or accessory liability. These theories of liability have been effective prosecutorial tools in FCPA negotiated resolutions for many years because they do not require that the government prove that the defendant physically entered the United States or was otherwise covered by the FCPA. By substantially limiting the cases where these charges are available, the Second Circuit decision dealt a significant setback to prosecutors seeking expansive theories on which to build an FCPA case against non-U.S. companies and individuals.

Background

The anti-bribery provisions of the FCPA prohibit "issuers" (Section 78dd-1), "domestic concerns" (Section 78dd-2), and other persons acting within the United States (Section 78dd-3), as well as individuals and organizations acting on their behalf, from bribing foreign government officials to obtain or retain business.1 As is relevant to the Hoskins decision, under Sections 78dd-2 and 78dd-3 in particular, the U.S. Department of Justice (DOJ) has jurisdiction to prosecute domestic concerns (i.e., U.S. persons or entities) or any officer, director, employee, or agent thereof and any person in U.S. territory acting in furtherance of a corrupt payment.2

The DOJ charged Lawrence Hoskins, a U.K. citizen employed by a U.K. subsidiary of Alstom S.A. (Alstom), a French company, with (1) substantive FCPA charges as an agent of a separate, U.S.-based Alstom subsidiary, Alstom Power, Inc. (Alstom U.S.), and (2) conspiring to violate Section 78dd-2 (American companies and persons) and Section 78dd-3 (acts taken while on U.S. soil), both as an agent of Alstom U.S. and independently of any agency relationship through conspiracy and aiding and abetting liability.3 The government asserted that Hoskins was part of a scheme to bribe Indonesian government officials to secure a $118 million contract for Alstom U.S. and its consortium partner to provide power-related services for the citizens of Indonesia. Notably, the DOJ charged Hoskins with conspiracy to violate Section 78dd-3 of the FCPA, despite the fact that Hoskins had never personally conducted any actions while physically present in the United States and thus could not be charged as a principal with violating Section 78dd-3 of the FCPA.4 In support of this charge, the prosecutors alleged that Hoskins participated in the conspiracy by approving and authorizing payments on behalf of Alstom U.S. to consultants retained for the purpose of paying bribes to Indonesian officials who had the ability to influence the award of the contract. Some of these payments allegedly flowed through U.S. bank accounts.

Hoskins moved to dismiss the conspiracy count, arguing that he could not be charged with conspiracy to violate the FCPA when he could not have been charged with a substantive violation for the same underlying acts. The government opposed the motion. The government also moved to preclude Hoskins from arguing to the jury that the government must prove that he was the agent of a domestic concern, given that the government's contention Hoskins could also be convicted under the alternative theory of accomplice liability.

District Court Decision

The district court held that although accomplice liability under the general conspiracy and aiding and abetting statutes applied generally across the U.S. Code, "a non-resident foreign national could not be subject to criminal liability under the FCPA pursuant to accomplice theories of liability or aiding and abetting violations of the FCPA where he is not acting as an agent of a domestic concern or does not act while physically present in the United States."5 District Judge Janet Arterton's opinion relied on the 1932 U.S. Supreme Court ruling in Gebardi v. United States for the proposition that where Congress chose to exclude certain individuals from liability under a statute, prosecutors cannot override Congress's will by charging those individuals with conspiracy to violate that statute.6 Applying the Gebardi principle, Judge Arterton found that the text, structure, and legislative history of the FCPA indicate that Congress did not intend for nonresident foreign nationals to be subject to the FCPA unless they were agents of a U.S. domestic concern or acted in the territory of the United States.

Thus, the district court held Hoskins could only be charged pursuant to accomplice liability if he could be charged under the FCPA with substantive violations of the statute itself. It was undisputed that Hoskins never entered U.S. territory. The question then was whether Hoskins could be subject to criminal liability under the FCPA, even where he was not an agent of a domestic concern and did not commit acts while physically present in the territory of the United States, under a theory of either conspiracy or aiding and abetting a violation of the FCPA by a person who is within the statute's reach. Judge Arterton held that the answer is "'no' and that accomplice liability cannot extend to this Defendant under such circumstances. . . ." Judge Arterton did not dismiss the conspiracy count entirely, however, finding that criminal liability could attach if the government proves that Hoskins is in fact such an agent and could be charged under Section 78dd-2. The decision was appealed to the Second Circuit.

Second Circuit Decision

On August 24, 2018, more than a year after the oral argument, the Second Circuit affirmed in part and reversed in part the lower court's decision.7 A three-judge panel affirmed the lower court's ruling that the government could not charge Hoskins with conspiracy to violate Sections 78dd-2 or 78dd-3 absent an agency relationship, largely along the same lines as the lower court. The Second Circuit held that the FCPA has a "single, obvious omission [which] is jurisdiction over a foreign national who acts outside the United States, but not on behalf of an American person or company as an officer, director, employee, agent, or stockholder."8 The panel cited two independent grounds in support of its conclusion: (1) the exclusion of foreign nationals from conspiratorial liability based on the applicability of the Gebardi exception and (2) the presumption against extraterritoriality.

First, the panel considered the applicability of the Supreme Court's decision in Gebardi, which created an exception to the general common law rule permitting accessorial liability. In Gebardi, the Supreme Court considered whether a woman could be convicted of conspiracy to violate the Mann Act, which prohibited the transportation across state lines of "any woman or girl for the purpose of prostitution or debauchery."9 The Court concluded that Congress intended not to impose liability on the woman being transported and that, based on this legislative policy, she could not be prosecuted under a theory of accessory liability. Here, the Second Circuit panel applied Gebardi to find that the text, structure, and legislative history of the FCPA demonstrate a congressional intent to exclude foreign nationals from liability under the FCPA when they are not acting as agents of domestic concerns and do not commit any acts while in the United States. The panel rejected the government's proposed extremely "narrow" construction of the Gebardi exception to apply only when a "defendant's participation in the crime is frequently, if not normally a feature of the [substantive] criminal conduct."10

Instead, the panel looked to the text and history of the FCPA for indications of congressional intent on the liability of foreign nationals. The panel cited, for example, the fact that "[t]he statute includes specific provisions covering every other possible combination of nationality, location, and agency relation, leaving excluded only nonresident foreign nationals outside American territory without an agency relationship with a U.S. person, and who are not officers, directors, employees, or stockholders of American companies."11 The panel also noted that "each mention of foreign nationals is carefully followed by clarifications—often highly repetitive ones—noting that foreign nationals are liable only because they fall within one of the three categories" in the text of the FCPA.12 After a detailed review of the legislative history, the panel concluded that "[t]he strands of the legislative history demonstrate, in several ways, the affirmative policy described above: a desire to leave foreign nationals outside the FCPA when they do not act as agents, employees, directors, officers, or shareholders of an American issuer or domestic concern, and when they operate outside United States territory."13 Accordingly, the panel held that Congress had demonstrated an intent to exclude such foreign nationals from conspiratorial liability under the FCPA.

Second, the panel held that, even if it had not found an "affirmative legislative policy in the FCPA to limit criminal liability to the enumerated categories of defendants, [it] would still rule for Hoskins because the government has not established a 'clearly expressed congressional intent to' allow conspiracy and complicity liability to broaden the extraterritorial reach of the statute."14 In so holding, the panel applied the general principle from the RJR Nabisco case that to extend a statute to extraterritorial conduct, the government must demonstrate a clearly established congressional intent in favor of that application. The Second Circuit found no such clear intent here.

The Second Circuit reversed the lower court's complete dismissal of the Section 78dd-3 conspiracy charge, because the government had also charged Hoskins with conspiring to violate Section 78dd-3 as an agent of Alstom US. The Second Circuit explained that Hoskins, as an agent of a US entity, would fall within one of the categories of persons to which Congress chose to extend the applicability of the FCPA, and thus could potentially be liable for conspiracy to violate Section 78dd-3 even if he had never set foot on U.S. soil. The agency theory thus remains viable for the government although the conspiracy theory is foreclosed.

Significance

First, the Hoskins decision limits the government's ability to pursue FCPA charges against foreign companies and individuals based on expansive theories of conspiracy and accessory liability. To pursue such cases after the Hoskins decision, the government will have to show that the foreign company or individual could be held liable for a substantive violation of the statute, as an agent of a domestic concern (Section 78dd-2),15 or based on acts taken within the United States (Section 78dd-3).16 Notably, the case contradicts the 2012 FCPA Resource Guide, issued jointly by the DOJ and the U.S. Securities and Exchange Commission, which asserts that "[a] foreign company or individual may be held liable for aiding and abetting an FCPA violation or for conspiring to violate the FCPA, even if the foreign company or individual did not take any act in furtherance of the corrupt payment while in the territory of the United States."17 The decision is particularly significant for foreign companies that have teaming agreements, joint ventures, or other business arrangements with U.S. companies. Prior to this ruling, conspiracy and accomplice liability were potential hooks for U.S. jurisdiction over foreign companies in such arrangements, and several FCPA settlements against foreign companies have been premised on these theories. The Hoskins decision severely limits U.S. reach over foreign companies in these types of transactions.

Second, with respect to liability under Section 78dd-3, the Second Circuit's decision in Hoskins may affect the strength of arguments available to defendants about the level of contacts needed to establish a sufficient jurisdictional nexus. The three-judge panel in Hoskins emphasized throughout the opinion that Hoskins cannot be held liable because he was never physically present in the United States.18 The panel's statements on this conform with other case law in this area, which has held that the territorial requirement of Section 78dd-3 is understood to be more stringent than the interstate commerce requirement in Sections 78dd-1 and 78dd-2 and requires an act undertaken while physically present in the United States, as opposed, for example, to routing a transaction through a U.S. bank. These prior decisions, however, had not addressed the issue of whether phone calls, emails, or dollar-denominated payments can satisfy the "in the territory" element of Section 78dd-3. The Hoskins decision adds further support for the argument that physical presence in the United States is required for liability under Section 78dd-3 of the FCPA.

However, it is important to note that the Second Circuit's decision is premised on the presumption that Hoskins did not act as an agent of a U.S. entity, and the DOJ now has the opportunity to try to prove that Hoskins was such an agent. The panel specifically noted that "[b]ecause the question before us is whether conspiracy and complicity charges can be used to extend liability beyond the categories delineated in the statute, we assume that Hoskins is not an agent of Alstom U.S. only for the sake of arguments advanced on appeal and express no views on the scope of agency under the FCPA."19 As a result, the decision offers no insight into how broadly a court might construe principles of agency liability for purposes of the FCPA. Prosecutors will likely take a broad view of agency principles when considering charges against foreign entities or individuals in FCPA cases.

In a separate concurring opinion that could be instructive on the agency point, Judge Lynch discussed the policy implications of the decision. Judge Lynch highlighted his concerns that the Second Circuit's decision might create perverse policy implications by insulating foreign parents who direct the actions of U.S. subsidiaries, noting that "the result we reach today seems to me questionable as a matter of policy."20 Judge Lynch agreed with the panel's holding that "the extraterritorial effects of the FCPA require us to exercise particular caution before extending its reach even farther than that expressly declared by the statutory text."21 At the same time, however, he noted that policy concerns might weigh in favor of the prosecution of individuals like Hoskins, but it was up to Congress to address the issue. Judge Lynch stated, for example, that "the prosecution of someone in Hoskins's position does not threaten a foreign country's sovereign power to select, retain, and police the officials of its own government, nor does it conflict with the policies of the countries involved."22 He also noted that the "effects of Hoskins's alleged actions" were not limited to his countries of citizenship and employment, but also affected the United States because "Hoskins is alleged to have been part of the team that reached into the United States to counsel and procure the commission of an American crime by an American company, and to assist that company in executing bribes in violation of American law."23

Judge Lynch concluded that "[i]t is for Congress to decide whether there are sound policy reasons for limiting the punishment of foreign nationals abroad to those who are agents of American companies, rather than to those who make American companies their agents."24 In its prosecution of Hoskins, the DOJ pointed to the same perverse policy resulting from an application of the statute only to agents of U.S. concerns, and relied on these results as support for its arguments for an expansive view of agency. For example, in opposing Hoskins's motion to dismiss, the government argued that it has jurisdiction over the foreign parent for its corrupt acts because of that parent's oversight and control over a U.S. entity. "One who oversees a company's sales efforts in a particular region and authorizes and approves payments to a consultant retained by that company would fit squarely within the definition of an employee or agent of that company."25 It remains to be seen how these arguments will be advanced by prosecutors and viewed by courts in the future.

Footnotes

1 15 U.S.C. § 78dd-1 (issuers); 15 U.S.C. § 78dd-2 (domestic concerns); 15 U.S.C. § 78dd-3 (other persons acting within the United States).

2 Id.

3 Second Superseding Indictment, United States v. Hoskins, 3:12-CR-00238-JBA (D. Conn. July 30, 2013).

4 United States v. Hoskins, 123 F. Supp. 3d 316, 319 (D. Conn. 2015). Hoskins is not a U.S. citizen. He was based in France during the relevant time period and has never worked for the U.S. subsidiary nor traveled to the United States during the alleged bribery scheme's time period.

5 Id.

6 Gebardi v. United States, 287 U.S. 112 (1932).

7 United States v. Hoskins, No. 16-CR-1010, 2 (2d Cir. Aug. 24, 2018) [hereinafter Hoskins].

8 Id. at 41.

9 Gebardi at 118 (quoting former 18 U.S.C. § 398).

10 Hoskins at 30 (citing Gov. Br. at 24).

11 Id. at 38-39.

12 Id. at 56.

13 Id. at 62.

14 Id. at 65 (quoting RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2100 (2016)).

15 15 U.S.C. § 78dd-2.

16 15 U.S.C. § 78dd-3.

17 U.S. Department of Justice and U.S. Securities and Exchange Commission, A Resource Guide to the U.S. Foreign Corrupt Practices Act, 34 (2012).

18 See, e.g., Hoskins at 7 ("The government concedes that, although Hoskins 'repeatedly e-mailed and called . . . U.S.-based coconspirators' regarding the scheme 'while they were in the United States,' Hoskins 'did not travel here' while the bribery scheme was ongoing." (citing Gov. Br. at 7)).

19 Hoskins at 4 n.1.

20 Id. at 12 (Lynch, J. concurring).

21 Id. at 10 (Lynch, J. concurring).

22 Id. at 14 (Lynch, J. concurring).

23 Id. at 15 (Lynch, J. concurring).

24 Id. at 16 (Lynch, J. concurring).

25 See Hoskins, Government's Response to Defendant's Pretrial Motion to Dismiss, at 33.

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