Jurisdictional “Victory” for Foreign National in FCPA Case
Business Law Alert 09/05/18 Edwin J. Broecker
Much has been written over the last week regarding the recent Second Circuit Court of Appeals ruling in United States v. Hoskins (2nd Cir. Aug. 24, 2018) that a foreign national could not be held liable as a conspirator or an accomplice to a violation of the Foreign Corrupt Practices Act (FCPA). The case is notable because there are very few court cases interpreting the FCPA and only a handful of appellate decisions. In addition, the case concerned the jurisdictional reach of the statute and dealt a blow to the Department of Justice’s aggressive assertion of jurisdiction as set forth in the 2012 DOJ and SEC’s FCPA Resource Guide. As discussed below, the bigger implication of the Hoskins decision may be on international joint ventures involving U.S. entities.
The jurisdictional reach of the FCPA is fairly straight forward. It applies to “issuers” (i.e. companies listed on a public exchange or foreign entities with ADRs) and domestic concerns (i.e. any individual who is a citizen, national or resident of the U.S. and any entity organized in the U.S. or having its principal place of business in the U.S.) wherever located. It also applies to “agents, officers, directors, employees or stockholders” of Issuers and Domestic Concerns (even if not a citizen or resident of the U.S.). Finally, the FCPA applies to actions occurring in the territory of the United States (e.g. a foreign national sitting in a New York airport calling another foreign national to authorize a bribe unrelated to the United States). The FCPA DOES NOT cover foreign nationals who act outside the United States who are NOT acting on behalf of an American person or company as an officer, director, employee, agent or stockholder.
The government initially charged Alstom, S.A., its U.S. subsidiary and 4 executives, including Mr. Hoskins in a scheme to bribe foreign officials in connection with a $118M contract to build a power plant in Indonesia. It's alleged that Alstom’s U.S. subsidiary and various individuals associated with Alstom S.A. retained consultants to obtain the contract. The consultants are alleged to have made corrupt payments to a government official in order to win the contract. Mr. Hoskins allegedly was one of the people responsible for approving the selection of and authorizing payments to the consultants knowing that a portion of the fees were going to be used to bribe the Indonesian officials. The companies and 3 of the executives settled and pled guilty. Those three executives were employees of the U.S. subsidiary. For those familiar with the FCPA, Alstom is one of the top 5 FCPA settlements ($772M).
In this case, Mr. Hoskins decided to challenge the government’s jurisdiction. Lawrence Hoskins is a U.K. resident working for Alstom S.A., a French company. Mr. Hoskins was not a U.S. citizen, never worked for the U.S. subsidiary and never stepped foot in the United States during the relevant time period. Nevertheless, the government charged Mr. Hoskins with, among other things, conspiracy to violate the FCPA and with being an accomplice to an FCPA violation. As the court phrased the question “[C]an a person be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal?” After a thorough review of the legislative history of the FCPA, the court concluded that the jurisdictional limit of the statute was limited and Mr. Hoskins could not be charged with being a co-conspirator or an accomplice.
While this is clearly a victory for Mr. Hoskins and other foreign nationals, it probably will not materially impact the government’s willingness to prosecute foreign nationals involved in FCPA violations. The Hoskins court let stand the allegation that Mr. Hoskins was also serving as an “agent” of the U.S. subsidiary. That portion of the indictment will go to trial and it will be up to a jury to determine to what extent Mr. Hoskins could be deemed an agent for the U.S. entity when he selected and authorized payments to the consultants. Agency theories of liability are very common in FCPA cases and form the basis for the third-party liability cases, which are the vast majority of FCPA cases. In addition, the U.S. has steadily increased its cooperation with foreign regulators to bring anti-corruption cases even involving U.S. entities. Hoskins will not change this cooperation.
Nevertheless, where the Hoskins decision may have broader implications is in the area of international joint ventures and teaming relationships involving U.S. companies. The DOJ has historically and aggressively prosecuted foreign joint venture partners claiming that the foreign partner was a co-conspirator with the U.S. entity. See United States v. JGC Corporation, (S.D.Tex. 2011) (Deferred Prosecution Agreement) (Jurisdiction asserted based on aiding and abetting a domestic concern to execute a bribery scheme). After Hoskins, these conspiracy allegations are no longer valid (at least in the Second Circuit). In order to prevail, the government will have to prove that the foreign actor is an agent of the U.S. entity and not just an agent of the joint venture. Given the multitude of structures that an international joint venture may take, proving agency to one of the partners may prove difficult.
Even though Hoskins was a victory for the defense and limited U.S. jurisdiction in certain respects, companies operating in high-risk markets need to remain vigilant and not change their corruption risk calculus. All companies, whether U.S. or non-U.S.-based should continue to take efforts to detect, prevent, and remediate bribery-related conduct. Now may be a good time to review and update your anti-corruption program and policies.
- Edwin J. Broecker: (317) 399-2828 / [email protected]