United States: Down But Not Out: Second Circuit's Hoskins Decision Narrows But Does Not Eliminate FCPA Liability For Non-Resident Foreign Nationals Acting Outside US

A recent Second Circuit Court of Appeals decision curtailed the broad theory of Foreign Corrupt Practices Act (FCPA) liability asserted by the US Department of Justice (DOJ). In United States v. Hoskins, the court ruled that the government could not use conspiracy or accomplice liability to charge non-resident foreign nationals acting outside the US with FCPA violations. The decision provides non-resident foreign entities and individuals with a new potential defense to FCPA charges. That said, non-resident foreign companies should be wary of the government using alternative legal theories and strategies, like a broad theory of agency liability, as a new basis to support an FCPA indictment.

In Hoskins,1 the court considered a challenge by defendant Lawrence Hoskins to his indictment. From 2002 to 2009, Hoskins worked as an executive for foreign subsidiaries of Alstom S.A., a French company offering global power and transportation services. The allegations in the indictment centered around the engagement of two consultants by Alstom S.A. and its American-based subsidiary, Alstom Power, Inc., to bribe Indonesian foreign officials in order to secure a US$118 million contract. Although Hoskins neither worked for the US subsidiary nor was physically in the US at the time, he was charged with authorizing payments to the consultants while knowing that some portion of the payments would be used to bribe Indonesian officials.2 The indictment alleged that Hoskins was liable as an agent of Alstom U.S., a US-based company. It further alleged that independent of his agency liability, Hoskins was also liable for conspiring with the company and its employees to violate the FCPA, as well as for aiding and abetting the violations.

Hoskins filed a motion to dismiss the third superseding indictment with the trial court, arguing that the DOJ could not rely on conspiracy or accomplice liability as a basis for FCPA violations because he was a non-resident foreign national that was not within the scope of the statute. The trial court agreed that Congress only intended to include a fixed set of entities and individuals, and "did not intend for the FCPA to encompass accomplice or conspiracy liability on non-resident foreign nationals who are not otherwise subject to direct liability" under the FCPA.3 Accordingly, the court dismissed the charges that relied on conspiracy or accomplice liability.

On interlocutory appeal, the Second Circuit affirmed. The court acknowledged that the text of the statute explicitly defines a specific set of entities/individuals that may be charged with a violation:

  1. American citizens, nationals, and residents, regardless of whether they violate 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;
  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.4

Recognizing that the statute does not address non-resident foreign nationals acting outside the US and not as an agent, such as Hoskins, the court then examined the legislative history to determine whether Congress intended these entities or individuals to be covered by the FCPA. The court found that Congress only intended to cover the specifically enumerated categories listed above. It further reasoned that even if Congress had not demonstrated the intent to limit liability to these specific categories, it would still rule in Hoskins favor because the DOJ had not established a "clearly expressed congressional intent" to overcome a presumption against broadening the extraterritorial reach of a statute. Thus, the Second Circuit held that the DOJ could not use conspiracy or accomplice liability as a basis for charges against Hoskins.

Importantly, the Second Circuit did allow the prosecution to proceed on other grounds. Recognizing that the DOJ intended to argue that Hoskins was liable as an agent of Alstom U.S., an American-based company encompassed by the statute, or by committing acts in the US, the court ruled that if the DOJ could make this showing, Hoskins would be subject to FCPA liability.

Hoskins is noteworthy because it rejects the expansive theory of FCPA liability adopted by the DOJ and the US Securities and Exchange Commission (SEC) intended to capture non-resident foreign entities and individuals acting outside the US. The court's ruling refutes the government's assertion in a 2012 FCPA resource guide published by the DOJ and SEC that "[i]ndividuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation."5 This opinion overrules the government's position and provides a new potential defense for non-resident foreign nationals subject to FCPA scrutiny. In light of this ruling, future defendants may want to consider challenging the government's other broad theories of liability that have yet to be challenged.

Foreign businesses, however, should be on notice that the government may use alternative legal theories or strategies to bring charges against entities not explicitly captured by the FCPA. The government may try to assert broad interpretations of vicarious liability or agency as an alternative basis for jurisdiction for charges—especially in light of the Hoskins court's acceptance of that theory. Foreign companies that act on behalf of American companies or individuals, such as third-party agents and distributors, may be especially susceptible to this theory. On the other hand, entities such as foreign-based partnerships and joint ventures do not usually qualify as agents and thus may be able to avoid agency liability, relying on Hoskins as a new potential defense. Additionally, Hoskins may spur US enforcement agencies to escalate their already increasing reliance on their foreign counterparts to bring enforcement actions against entities and individuals that fall outside the FCPA's scope. Companies that have concerns about the government's new prosecution theories or strategies in light of Hoskins should consult with legal counsel about whether these new theories are potentially applicable to their business dealings or subject to challenge.

Footnotes

1. United States v. Hoskins, --- F.3d ----, 2018 WL 4038192 (2d Cir. Aug. 24, 2018).

2. The indictment also included charges of wire fraud and money laundering that were not at issue on the appeal

3. Hoskins, 2018 WL 4038192, at *3 (quoting United States v. Hoskins, 123 F.Supp.3d 316, 327 (D. Conn. 2015)).

4. Id. at *13.

5. A Resource Guide to the U.S. Foreign Corrupt Practices Act by the Crim. Div. of the U.S. Dep't of Justice and the Enforcement Div. of the U.S. Sec. & Exchange Comm'n, at 34 (2012).

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