United States: Second Circuit Limits Government's Ability To Prosecute Foreign Nationals For Violations Of The FCPA

On August 24, 2018, the US Court of Appeals for the Second Circuit stripped the government of a powerful tool used to prosecute foreign nationals under the Foreign Corrupt Practices Act of 1977 (FCPA).1 In United States v. Hoskins, a three-judge panel held that "the FCPA does not impose liability on a foreign national who is not an agent, employee, officer, director, or shareholder of an American issuer or domestic concern—unless that person commits a crime within the territory of the United States."2 Under the court's ruling, a foreign national who works for a non-US company that does not issue securities in the United States and who never steps foot on US soil cannot be charged with conspiracy to violate the FCPA or aiding and abetting a violation of the FCPA.

Judge Learned Hand famously wrote that conspiracy law is the "darling of the modern prosecutor's nursery."3 To be sure, conspiracy law broadens the federal prosecutor's power significantly. But, as the Second Circuit's much-anticipated decision in Hoskins now shows, the scope of conspiracy is not without limits. At least in the FCPA context, US conspiracy law can no longer sweep in foreign nationals who neither work for a US company nor physically present in the United States, which could have a dramatic impact on FCPA enforcement. This opinion, however, should not be seen as providing a safe haven for bribery abroad by foreign nationals, especially as anti-bribery enforcement continues to ramp up in many countries across the globe. In the end, the best practice for companies is to maintain a culture and robust compliance program geared toward snuffing out corruption before it happens.

Background of Hoskins

The defendant, Lawrence Hoskins, is a British citizen who had worked for Alstom Resources Management, a French subsidiary of Alstom S.A. (Alstom), also a French company.4 US prosecutors alleged that Hoskins participated in a scheme from 2002 to 2009 to use "two consultants to bribe Indonesian officials who could help secure [an] $118 million power contract" for Alstom and its associates.5 While many of the allegations center on Alstom's US subsidiary and actions that took place in the United States, the government did not allege that Hoskins ever worked for the US subsidiary in a direct capacity or that he was physically present in the United States during the relevant time period.6

The operative indictment charged Hoskins with conspiracy to violate, and substantive violations of the FCPA. In addition to alleging that Hoskins acted as an agent of an American company, the government alleged that he was independently liable for conspiring with the company and its employees, as well as foreign persons, to violate the FCPA, and also for aiding and abetting their violations.7 In 2015, a federal judge in the District of Connecticut dismissed the portions of the indictment charging that, regardless of whether Hoskins was an agent of a US company, he had conspired to violate and aided and abetted a violation of the FCPA.8 The government appealed this dismissal, and the appeal was argued in March 2017.9

The Second Circuit's Ruling

On August 24, 2018, nearly 18 months after hearing oral argument, a three-judge panel of the Second Circuit affirmed the District Court's dismissal of the conspiracy and aiding-and-abetting charges. The Court framed the "central question of the appeal" as "whether Hoskins, a foreign national who never set foot in the United States or worked for an American company during the alleged scheme, may be held liable, under a conspiracy or complicity theory, for violating FCPA provisions."10

The Court applied the teaching from Gebardi v. United States, 287 U.S. 112 (1932), "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."11 Following a detailed analysis of the FCPA's legislative history, the Second Circuit found "an affirmative legislative policy to leave the category of defendants omitted from the statutory framework unpunished."12 The Court concluded that:

the carefully tailored text of the statute, read against the backdrop of a well-established principle that U.S. law does not apply extraterritorially without express congressional authorization and a legislative history reflecting that Congress drew lines in the FCPA out of specific concern about the scope of extraterritorial application of the statute, persuades us that Congress did not intend for persons outside of the statute's carefully delimited categories to be subject to conspiracy or complicity liability.13

The Second Circuit panel further explained how, under the Supreme Court's 2016 decision in RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016), the presumption against extraterritoriality required the District Court to dismiss the conspiracy and complicity charges against Hoskins, even though the FCPA is intended to have extraterritorial reach.14 The panel reasoned that the extraterritorial provisions of the FCPA are limited to their own terms and that the extraterritorial reach of ancillary offenses like aiding and abetting or conspiracy are coterminous with that of the underlying statute.15 Still, the panel allowed the government to pursue its theory that Hoskins acted as an agent of a "domestic concern," liable as a principal for substantive violations of the FCPA.16

The Second Circuit summarized the categories of persons over whom the government may exercise jurisdiction pursuant to the FCPA as follows:

  1. American citizens, nationals, and residents, regardless of whether they violate the FCPA domestically or abroad;
  2. most American companies [including foreign issuers of securities in the United States], regardless of whether they violate the FCPA domestically or abroad;
  3. agents, employees, officers, directors, and shareholders of most American companies, when they act on the company's behalf, regardless of whether they violate the FCPA domestically or abroad;
  4. foreign persons (including foreign nationals and most foreign companies) not within any of the aforementioned categories who violate the FCPA while present in the United States.17

Judge Lynch, who joined the panel decision, authored a concurrence to state why he regards this is a "close and difficult case."18 While expressing concerns about extraterritorial application of US law, he noted that court's decision may lead to a "perverse result, and one that is unlikely to have been anticipated or intended by Congress," namely, "to permit the prosecution of foreign affiliates of United States entities who are minor cogs in the crime, while immunizing foreign affiliates who control or induce such violations from a high perch in a foreign parent company."19

Takeaways

The recent Hoskins decision punctuates a rare litigation of an FCPA case and presents a defeat for the government's expansive theory of FCPA liability. The Second Circuit followed a trend of expressing concern about potential overreach of US law beyond US borders, and highlighted that the presumption against extraterritoriality is alive and well, even in the context of statutes that clearly have extraterritorial reach. As a result, Hoskins offers new potential defenses to foreign nationals being investigated (or awaiting trial) for FCPA violations. Foreign nationals accused of conspiring to violate or aiding and abetting a violation of other US laws may seek to benefit from Hoskins as well.

The law remains clear, however, that American companies and foreign issuers of securities in the United States remain subject to the FCPA, regardless of where misconduct takes place. And authorities in other countries—both in coordination with US authorities and independently—are showing a willingness to prosecute corruption. Accordingly, companies should strive to maintain a corporate culture and robust compliance program that prevents corruption before it takes place.

Footnotes

1 See 15 U.S.C. §§ 78dd-1, et seq.

2 United States v. Hoskins, Docket No. 16-1010-cr, 2018 WL 4038192, at *23 (2d Cir. Aug. 24, 2018) (emphasis in original). Under the FCPA, an "issuer" is a company issuing securities regulated by US law, including companies registered pursuant to 15 U.S.C. § 78l or required to file reports under Section 78o(d). Id. at *4, 12 (citing 15 U.S.C. § 78dd–1(a)). A "domestic concern" refers to "any individual who is a citizen, national, or resident of the United States," regardless where that person is in the world. Id. (quoting 15 U.S.C. § 78dd–2(h)(1)(A)).

3 Harrison v. United States, 7 F. 2d 259, 263 (2d Cir. 1925).

4 Hoskins, 2018 WL 4038192 at *1, 29.

5 Id. at *1.

6 Id. at *1-2.

7 Id. at *2.

8 United States v. Hoskins, 123 F. Supp. 3d 316 (D. Conn. 2015).

9 On December 22, 2014, the Justice Department announced that Alstom pleaded guilty and agreed to pay a $772 million criminal penalty to resolve charges relating to tens of millions of dollars in bribes paid to government officials in countries around the world. As part of the settlement, two US subsidiaries of Alstom entered into deferred prosecution agreements, admitting that they conspired to violate the anti-bribery provisions of the FCPA. See Press Release, DOJ, Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges (Dec. 22, 2014).

10 Hoskins, 2018 WL 4038192 at *5.

11 Id. at *9.

12 Id. at *11

13 Id.

14 Id. at *23-24; see also RJR Nabisco, 136 S. Ct. at 2102.

15 Hoskins, 2018 WL 4038192 at *23.

16 Id. at *1.

17 Id. at *13.

18 Id. at *25.

19 Id. at *29.

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