United States: FCPA Update August 2022

Revisiting Hoskins: Second Circuit Holds Foreign Non-Issuers not Present in the United States are not Subject to the FCPA Absent Common Law Agency Relationship

In a significant ruling for foreign non-issuers, the Second Circuit once again strictly construed the scope of the FCPA's anti-bribery provisions to limit the government's ability to charge foreign non-issuers not present in the United States. Earlier this month, former Alstom executive Lawrence Hoskins won his second appeal to the Second Circuit in his bid to have the court throw out the FCPA charges against him on jurisdictional grounds ("Hoskins II").¹

Hoskins, a UK citizen working for an Alstom UK subsidiary's Paris office, previously prevailed at the Second Circuit in 2018 ("Hoskins I") on the grounds that DOJ could not bring FCPA charges against him on a theory of conspirator liability if he was outside the statutory definitions of persons who could be charged with a substantive offense.² As Hoskins could not be charged as an accomplice or conspirator, DOJ alleged that he fell within the statute as an "agent" of a domestic concern³ (i.e., Alstom Power, Inc. ("API") – one of Alstom's U.S. subsidiaries and Hoskins's alleged co-conspirator)). Following the district court in applying the common law definition of agency to the word "agent" in the FCPA, a divided Second Circuit panel found that merely rendering support services (even if significant) does not constitute agency absent the common law requirement of control.

The Second Circuit's decision in Hoskins II (like Hoskins I) is likely to increase the challenges the government faces in bringing FCPA charges against foreign individuals and non-issuers allegedly involved in a bribery scheme abroad.⁴ Notably, the agency issue addressed in Hoskins II (and the conspiracy issue addressed in Hoskins I) are still subject to ongoing litigation in other circuits, including the Fifth Circuit's consideration of an appeal by Swiss banker Daisy Rafoi-Bleuler, who the government alleged acted as an agent of PDVSA and its U.S. subsidiary in connection with a bribery and money laundering scheme.⁵

Factual and Procedural Background

The underlying alleged bribery scheme occurred from 2002 to 2009, during which time Hoskins was employed by the UK subsidiary of Alstom, S.A. ("Alstom"), a multinational power and transportation company based in France. The alleged scheme – to bribe Indonesian officials who would in turn help API land a $118 million contract to build a power plant – was carried out by API, Alstom's U.S. subsidiary, and several individuals associated with Alstom, including two local consultants.⁶ Hoskins' specific role was allegedly to select the two consultants and authorize payments to those consultants who then passed the funds along to the Indonesian officials.⁷

Hoskins is not an American citizen, he did not work directly for API, and he never entered the United States while the alleged scheme was ongoing – any of these might have provided a more traditional jurisdictional hook for DOJ to pursue FCPA charges. The FCPA prohibits three classes of defendants from corruptly offering, giving, promising to give, or authorizing the giving of anything of value to any foreign official in order to assist in obtaining or retaining business. These three classes are: "issuers" of securities in the United States; "domestic concerns" (i.e., U.S.-based companies, citizens or residents); and foreign entities or non-U.S. persons who take steps in furtherance of a corrupt payment "while in the territory of the United States." Officers, directors, shareholders, employees and agents of each of the above are also subject to FCPA liability.

DOJ's initial jurisdictional theory for Hoskins relied on applying the substantive charges to API, Alstom's U.S. subsidiary and a "domestic concern" under the statute, and then charging Hoskins as API's co-conspirator. Hoskins moved to dismiss the count charging him with conspiracy to violate the FCPA, which the district court granted in part and denied in part. In particular, the court dismissed the count to the extent it relied on conspiracy to establish liability for Hoskins but allowed the count to remain to the extent that Hoskins fell within one of the statute's enumerated categories (i.e., an agent of a domestic concern).

DOJ appealed this ruling, but it was rebuffed by the Second Circuit in Hoskins I. Nevertheless, the district court permitted DOJ to proceed to trial under the theory that Hoskins was API's agent and thus subject to liability under both the substantive violations of the FCPA and conspiracy to commit the same.

At trial, DOJ charged Hoskins with 12 counts: conspiracy to violate the FCPA under 18 U.S.C. § 371 (Count One); various substantive violations of the FCPA under 15 U.S.C. § 78dd-2 and 18 U.S.C. § 2 (Counts Two-Seven); conspiracy to launder money under 18 U.S.C. § 1956(h) (Count Eight); and substantive money laundering under 18 U.S.C. § 1957 and 18 U.S.C. § 2 (Counts Nine-Twelve).⁸ The jury found Hoskins guilty on eleven of the twelve counts in November 2019, acquitting him of one count of money laundering.

However, in February 2020, the district court partially granted Hoskins' motion for judgment of acquittal on the FCPA-related counts, concluding there was an insufficient factual basis to establish an agency relationship between Hoskins and API.⁹ For the remaining counts, the district court sentenced Hoskins to fifteen months' imprisonment.

DOJ appealed the acquittal, which ultimately led to the Second Circuit's most recent ruling (discussed below). Hoskins cross-appealed with respect to the district court's ruling on issues related to the Speedy Trial Act, 6th Amendment violations, and errors within the jury instructions. The Second Circuit affirmed the district court's decision with respect to these issues.¹⁰

Hoskins II

On appeal, the crux of the "agency" issue was whether a jury could have found beyond a reasonable doubt that the factual record demonstrated that the support services Hoskins provided to API were sufficient to create a common law agency relationship.

Common Law Agency

Both Hoskins and DOJ agreed that the common law definition of "agency" governed the issue.¹¹ Judge Pooler writing for the majority, which also included Judge Newman, explained that the common law definition is the "fiduciary relationship that arises when one person (a 'principal') manifests assent to another person (an 'agent') that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests or otherwise consents so to act."¹² The Court further identified three elements that create an agency relationship:

The last of these factors emphasizes an assessment of control, and the Court centered its analysis on determining whether API could control Hoskins.

Hoskins's Role

In assessing whether API controlled Hoskins, the Court observed that Hoskins was employed by a separate subsidiary of Alstom, not API itself, and even then in an "inward facing support organization that provided operational business units with support on an as-needed basis."¹⁴ As mentioned earlier, Hoskins allegedly played a role in selecting the two consultants who ultimately provided funds to the Indonesian officials. However, the Court noted that Hoskins's actions to secure these consultants "were all subject to the decision-making" of API Executives.¹⁵ The Court emphasized that "[c]onspicuously missing" from the record was any indication that API directly controlled Hoskins' actions – API did not hire Hoskins, could not fire him, and had no control of his compensation.¹⁶ The Court acknowledged that Hoskins supported API over the course of selecting and hiring the consultants and that Hoskins at time acted at API's direction, but found these on their own were insufficient indicia that an agency relationship had been formed.¹⁷ Notably, the Court highlighted that "identifying consultants" and "reviewing contracts" for compliance with API standards did not make Hoskins API's agent.¹⁸ Finally, the Court noted that Hoskins could not "bind" API to legal commitments such that he could hire the consultants without API's instruction, with an agent's ability to bind it principal being "a hallmark" of an agency relationship.19

Finding that Hoskins' relationship with API lacked many of the essential aspects of an agency relationship, the Court affirmed the district court's holding that a jury could not have found beyond a reasonable doubt that Hoskins was an agent of API and therefore Hoskins was not subject to FCPA liability.

Footnotes

1. United States v. Hoskins, No. 20-842-cr(L) (2d Cir. Aug. 12, 2022) ("Slip Op.").

2. United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018). See also Kara Brockmeyer, Colby A. Smith, Bruce E. Yannett et al., "Second Circuit FCPA Application to Some Foreign Participants in Bribery," FCPA Update, Vol. 10, No. 1 (Aug. 2018), https://www.debevoise.com/insights/ publications/2018/08/20180830-fcpa-update-august-2018.

3. 15 U.S.C. §78dd-2.

4. For our initial assessment of the agency question as handled by the district court, see Kara Brockmeyer, Andrew M. Levine, Andreas A. Glimenakis, and Katherine R. Seifert, "District Courts Address Significant Aspects of Criminal Liability under the FCPA," FCPA Update, Vol. 11, No. 8 (Mar. 2020), https://www.debevoise.com/insights/publications/2020/03/fcpa-update-march-2020; see also Kara Brockmeyer, Andrew J. Ceresney, Andrew M. Levine, et al., "The Year 2019 in Review: A Record-Breaking Year of Anti-Corruption Enforcement," FCPA Update, Vol. 11, No. 6 (Jan. 2020), https://www.debevoise.com/insights/publications/2020/01/fcpa-update-january-2020, at 22.

5. United States v. Rafoi-Bleuler, No. 21-20658 (5th Cir. 2022).

6. DOJ settled with Alstom and several of its subsidiaries in 2014. In addition to these entities, DOJ brought charges against several individuals allegedly involved in the scheme, all of whom, with the exception of Hoskins, settled. See Plea Agreement, United States v. Frederic Pierucci, Case No. 3:12-cr-238-JBA (filed July 29, 2013), https://www.justice.gov/criminal-fraud/case/united-states-v-frederic-pierucci-court-docket-number12-cr-238-jba; Plea Agreement, United States v. William Pomponi, Case No. 3:12-cr-238-JBA (filed July 17, 2013), https://www.justice.gov/sites/ default/files/criminal-fraud/legacy/ 2014/07/23/pomponi-plea-agreement.pdf; Plea Agreement, United States v. David Rothschild, Case No. 3:12- cr-00223 (WWE) (filed Nov. 2, 2012), https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2013/04/22/rothschild-guilty-plea.pdf.

7. Third Superseding Indictment ¶ 8, United States v. Hoskins, No. 3:12-cr-238-JBA (D. Conn. Apr. 15, 2015).

8. Id. at 2.

9. United States v. Hoskins, 3:12-cr-238-JBA, 2020 WL 914302, at *7, *13 (D. Conn. Feb. 26, 2020).

10. Slip Op. at 19 (The applicability of the common law definition of agency to the FCPA was conceded by the government at the trial court. Judge Lohier's dissent notes that "the wisdom of the Government's concession on this point is debatable").

11. Id.

12. Id. at 17 (citing In re 17 Trib. Co. Fraudulent Conv. Litig., 946 F.3d 66, 79 (2d Cir. 2019)).

13. Id. at 18 (citing Johnson v. Priceline.com, Inc., 711 F.3d 271, 277 (2d Cir. 2013)). The Court enumerated further factors for consideration in the agency context as well, which include "the situation of the parties, their relations to one another, and the business in which they are engaged; the general usages of the business in question and the purported principal's business methods; the nature of the subject matters and the circumstances under which the business is done." Id. at 18–19 (citing Cleveland v. Caplaw Enters., 448 F.3d 518, 522 (2d Cir. 2006)) (internal quotes removed).

14. Id. at 7 (internal quotes removed).

15. Id. at 19.

16. Id. at 20.

17. Id. at 20–22. The Court also highlighted API's inability to "revoke" Hoskins' authority as another strong indication that no agency relationship existed. Id.

18. Id. at 21.

19. Id. at 22.

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