United States: Second Circuit Rejects DOJ's Expansive Theory Of Conspiracy And Accomplice Liability Under The FCPA For Foreign Nationals

On August 24, 2018, nearly 18 months after hearing oral argument, the U.S. Court of Appeals for the Second Circuit issued a decision in United States v. Hoskins,1 that significantly limits the Department of Justice's ("DOJ") ability to use the conspiracy statute or accomplice liability to prosecute a foreign national who lacks direct ties to the United States or a U.S. company for Foreign Corrupt Practices Act ("FCPA") violations. Affirming in part and reversing in part the District Court decision, the three-judge panel ruled 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 Although the Appeals Court also confirmed DOJ's ability to prosecute a foreign national under the conspiracy statute or accomplice liability where the foreign national acted as an agent of the U.S. company, the Court's ruling represents a dramatic defeat for DOJ, which has increasingly been charging foreign nationals with conspiracy to violate the FCPA, regardless of whether they were alleged to be an agent. Because of DOJ's expansive view of agency doctrine in the context of FCPA enforcement, it remains to be seen how large an impact the Hoskins decision ultimately will have on the ability of DOJ to prosecute foreign nationals for FCPA violations. Regardless, given increasingly aggressive enforcement of anticorruption laws abroad and in the United States, multinational companies are still well-advised to implement and maintain robust anticorruption compliance programs designed to prevent violations from occurring.

Background

In connection with an alleged bribery scheme involving French company, Alstom S.A., and its Connecticut-based subsidiary, Alstom Power, Inc. ("Alstom US"), DOJ charged individuals, including Lawrence Hoskins, with substantive violations of the FCPA and conspiracy to violate the FCPA for retaining consultants to bribe Indonesian officials to secure a $118 million power supply contract. During the relevant time, Hoskins, a British citizen, was employed by Alstom's British subsidiary but assigned to a French subsidiary, Alstom Resource Management.3 In his role as senior vice president overseeing Alstom's Asian region, Hoskins allegedly coordinated with his co-conspirators to retain, supervise, and instruct consultants in Indonesia.4 DOJ charged Hoskins with a multi-object conspiracy to violate the FCPA.

Three of Hoskins alleged co-conspirators pled guilty to charges, including conspiracy to violate the FCPA and violating the FCPA. These individuals admitted to channeling bribes through consultants who paid off a member of the Indonesian Parliament and high-ranking members of the Indonesian state-owned electricity company.5 In 2014, Alstom S.A. agreed to pay a $772 million criminal fine to settle charges related to $75 million worth of bribery payments made around the world, including in Indonesia.6

In the indictment, DOJ charged Hoskins with, among others crimes, one count of conspiracy to commit violations of the FCPA and aiding and abetting.7 Hoskins chose to defend the case in part on the grounds it is "a legally invalid theory that he could be criminally liable for conspiracy to violate the [FCPA]."8 The District Court granted Hoskins's motion to dismiss Count One of the indictment related to the first object of the conspiracy to the extent that the Count sought to charge Hoskins with conspiring to violate Section 78dd-2 of the FCPA without demonstrating that Hoskins fell into one of the statute's enumerated categories: a domestic concern, or an officer, officer, director, employee, agent or stockholder thereof.9 The District Court reasoned that in such a circumstance Hoskins would not be an individual contemplated by the statute as being prosecutable.10 The District Court also dismissed Count One to the extent that it alleged that Hoskins conspired to violate Section 78dd-3, which prohibits acts "while in the territory of the United States," because Hoskins had never entered the United States during the relevant period.11 In addressing the question of "whether a nonresident foreign national could be subject to criminal liability under the FCPA, even where he is not an agent of a domestic concern and does not commit acts while physically present in the territory of the United States, under a theory of conspiracy or adding and abetting . . .,"12 the District Court answered, no. The government sought an interlocutory appeal of the dismissal of Count One of Hoskins's multi-count indictment.

The Court's Opinion

A three-judge panel affirmed in part and reversed in part the District Court's decision.13 In a significant defeat for DOJ, the panel upheld the dismissal of Count One for conspiracy to violate the FCPA, holding that the FCPA clearly dictates that foreign nationals may only violate the statute outside the United States if they are agents, employees, officers, directors or shareholders of an American issuer or domestic concern, and that they cannot be held liable for conspiracy or complicity relating to an FCPA violation unless they are within one of these categories, or acted illegally on American soil. The panel reversed the lower court's decision to dismiss the portion of the conspiracy count premised upon the second object of the conspiracy under Section 78dd-3 even under circumstances where the government intended to prove that Hoskins acted as an agent of a domestic concern in violating the FCPA. While the lower court premised its dismissal on its determination that Mr. Hoskins never entered the territory of the United States and therefore could not be prosecuted directly under Section 78dd-3, the Panel held that the government could still pursue a conspiracy violation under 78dd-3 by proving that "Hoskins committed the first object by conspiring with employees and other agents of Alstom U.S. and committed the second object by conspiring with foreign nationals who conducted relevant acts while in the United States."14 Notably, the Second Circuit panel undertook a painstaking review of the FCPA's legislative history to reach its decision that foreign nationals cannot be prosecuted for conspiracy to violate the FCPA or with complicity unless they are included within the categories of persons identified as liable for an FCPA violation or they committed an illegal act within the United States.

Common Law Rule and Application of Gebardi

The Court began its analysis of DOJ's use of conspiracy and accomplice liability with a discussion of the common law rule for these crimes. It conceded at the outset that common law crimes of conspiracy and complicity apply broadly as a default, even to persons who could not statutorily commit the underlying crimes.15 "[T]he firm baseline rule with respect to both conspiracy and complicity is that where the crime is so defined that only certain categories of persons, such as employees of a particular sort of entity, may commit the crime through their own acts, persons not within those categories can be guilty of conspiring to commit the crime or of the substantive crime itself as an accomplice."16

However, the Court turned to the Supreme Court's decision in Gebardi v. United States, 287 U.S. 112 (1932), which recognized the existence of a limited exception to the default proposition under common law that persons not subject to primary liability could be subject to conspirator and accomplice liability. Under Gebardi, where the statute embodies an affirmative legislative policy of consciously leaving certain persons unpunished under the statute, those who do not face primary liability under the statute also cannot be prosecuted for conspiracy to violate the statute or accomplice liability. Thereafter, the Appeals Court performed an exhaustive analysis of the text and legislative history of the FCPA to determine whether the statute embraced an affirmative legislative policy to make some actors unpunishable under the statute.

Affirmative Legislative Policy and the FCPA

The Court began with the text of the FCPA. The FCPA confers jurisdiction over four express categories of individuals and entities: "(1) American citizens, nationals, and residents, regardless of whether they violated the FCPA domestically or abroad; (2) most American companies, 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; and (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 The Court noted that the Act does not explicitly contemplate individuals such as Hoskins as falling inside of its reach unless Hoskins qualified as an agent or violated the FCPA while present in the United States. A thorough consideration of the FCPA's legislative history led the Second Circuit panel to the conclusion that the statute "named particular categories of individuals who would be liable under the FCPA rather than relying on the use of conspiracy and complicity principles to create such liability."18

Importantly, the Court stated that even if it were not persuaded by its affirmative legislative policy analysis,19 the "presumption against extraterritorial application" of U.S. laws weighs in Hoskins's favor.20 The Court explained that exterritorial jurisdiction requires explicit Congressional intent to apply a criminal statute to foreign activity. As discussed above, the FCPA's provisions are limited to specific categories of actors and actions, which effectively bars DOJ from expanding the reach of the FCPA through conspiracy and complicity charges without that statutory hook. Hoskins's status as a foreign national working for a foreign corporation triggered extraterritorial prosecution on a person who, in this case, did not take action on U.S. soil. In such instances, the panel found that sweeping common law principals also should be considered "against the backdrop of a well-established principle that U.S. law does not apply extraterritorially without express congressional authorization."21 The decision noted numerous Supreme Court and Circuit decisions finding the jurisdictional reach of ancillary offenses such as conspiracy or aiding and abetting to be "coterminous" with that of the underlying statute in extraterritorial prosecutions.22

Status of US v. Hoskins

While the Court dismissed Count One's first object of the conspiracy, the Second Circuit did agree with the Government and reverse the District Court's dismissal of the second object of the conspiracy. The Second Circuit ruled that "[t]he government should be allowed to argue that, as an agent, Hoskins committed the first object by conspiring with employees and other agents of Alstom U.S. and committed the second object by conspiring with foreign nationals who conducted relevant acts while in the United States."23

As the Hoskins case proceeds on remand, observers should watch how the government pursues Hoskins under an agency theory.

The Concurring Opinion

Judge Lynch's concurring opinion highlighted the difficulties presented in this case, and invited Congress to re-evaluate the FCPA in light of the Court's holding. In asking Congress to revisit the FCPA, Judge Lynch characterized the Second Circuit's decision as "questionable as a matter of policy" 24 even though correct under the law because the Congressional limitations on those who could be prosecuted were originally designed to avoid the diplomatic difficulties of prosecuting foreign officials. Here, however, Hoskins was not a foreign government official, but was instead a citizen of the United Kingdom and a French company employee alleged to have assisted a U.S. entity in paying bribes. Judge Lynch found this result unfortunate from a public policy perspective because both the countries, along with the United States, are signatories of the Organisation for Economic Co-operation and Development ("OECD") Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which is also promoted by the enforcement of the FCPA. 25

Conclusion

Given the relatively limited number of litigated criminal FCPA prosecutions, it is rare for courts to have the opportunity to construe the elements, extraterritorial reach and scope of liability of the FCPA. The Second Circuit's decision in United States v. Hoskins represents a significant rejection of the government's expansive view of conspiracy liability for foreign nationals under the FCPA. It is also powerful precedent for practitioners to cite in arguing the extraterritorial limitations of the FCPA. However, because the government can still prosecute foreign nationals for conspiracy to violate the FCPA when they acted as agents of an issuer or domestic concern or committed illegal acts in the United States, it remains to be seen how large a population of foreign nationals will actually be exempt from prosecution under Hoskins. Similarly, DOJ is often able to prosecute for money laundering individuals who participated in a scheme to bribe a foreign official but are not reachable under the FCPA. One thing is for sure: The Hoskins victory is not likely to dull the DOJ's commitment or appetite to prosecute aggressively companies or foreign nationals involved in bribing foreign officials in violation of the FCPA. Accordingly, multinational companies are still well-advised to implement, regularly audit and improve robust anticorruption compliance programs designed to prevent violations from occurring in the first place.

Footnotes

1United States v. Hoskins, —F.3d—, 2018 WL 4038192 (2d Cir. 2018).

2 Id at 23.

3 Id at 1.

4 Department of Justice Office of Public Affairs, Former Executive of French Power Company Subsidiary Pleads Guilty in Connection with Foreign Bribery Scheme, Department of Justice (July 17, 2014).

5 Id.

6 Department of Justice Office of Public Affairs, Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges, Department of Justice (Dec. 22, 2014).

7 United States v. Hoskins, 123 F.Supp.3d 316, 317 (D.Conn. 2015) aff'd in part, rev'd in part, —F.3d—, 2018 WL 4038192 (2d Cir. 2018).

8 Id at 318.

9 Id at 327.

10 Id.

11 Id at 327 n.14.

12 Id at 319.

13 Judge Lynch wrote separately in a concurring opinion.

14 Hoskins, —F.3d—, 2018 WL at 24.

15 Id at 7.

16 Id.

17 Id at 13.

18 Id at 16.

19 Hoskins, —F.3d—, 2018 WL at 22.

20 Id.

21 Id at 11.

22 Id at 23 (citing United States v. Bowman, 260 U.S. 94 (1922); RJR Nabisco, Inc. v. 19 European Cmty., 136 S. Ct. 2090 (2016); United States v. Ali, 718 F.3d 929 (D.C. Cir. 2013); United States v. Yakou, 428 F.3d 241 (D.C. Cir. 2005); United States v. Hill, 279 F.3d 731 (9th Cir. 2002).

23 Id at 24.

24 Id at 29.

25 Hoskins, —F.3d—, 2018 WL at 29.

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