In a decision that is likely to resonate across various US government enforcement efforts, the US Court of Appeals for the Second Circuit recently ruled that the Foreign Corrupt Practices Act does not apply to nonresident foreign nationals, acting outside American territory, who lack an agency relationship with a US person or company and are not officers, directors, employees, or stockholders of American companies.
In a 73-page opinion in United States v. Hoskins, the US Court of Appeals for the Second Circuit recently ruled that the Foreign Corrupt Practices Act (FCPA) “does not impose liability on a foreign national who is not an agent, employee, officer, director or shareholder of an American or domestic concern – unless that person commits a crime within the territory of the United States.” The court rejected the government’s attempt to broaden the FCPA’s reach to include accomplice or conspiracy liability for committing an FCPA crime for which a nonresident foreign national could not be charged directly as a principal.
The government had charged Lawrence Hoskins, a former employee of Alstom S.A., a global company headquartered in France that provides power and transportation services, and three other Alstom executives with facilitating an Indonesian bribery scheme. The scheme allegedly involved Alstom’s US subsidiary (Alstom US) retaining two consultants to bribe Indonesian officials in order to secure a $118 million Indonesian power plant contract between 2002 and 2009. Hoskins, a British national, worked for Alstom’s French subsidiary, while the other executives, who pled guilty, worked for Alstom US. Alstom pled guilty and paid a $772 million fine. Marubeni Corporation, Alstom’s partner in the project, also pleaded guilty and paid an $88 million fine.
The government initially charged Hoskins with being an “agent” of Alstom US in connection with the FCPA scheme. Later, it superseded the indictment three times to add conspiracy and accomplice liability allegations to the conspiracy count, which would allow it to convict Hoskins even if the jury were to find that he was not an agent of Alstom US.
Hoskins moved before the district court to have the FCPA conspiracy count dismissed, contesting that he did not fit in any of the categories of people who the FCPA had delineated could be charged with violations, that the statute was limited in its extraterritorial applications, and that the government could not use conspiracy or complicity statutes to charge Hoskins indirectly where it could not charge him directly as a principal. Stated differently, Hoskins essentially argued that he had immunity against conspiracy and accomplice liability under the FCPA since the FCPA and related accessorial statutes did not cover nonresident foreign nationals who acted outside the United States and were not agents, officers, directors, employees, or stockholders of American companies.
While the government conceded that Hoskins was a nonresident foreign national who had never traveled to the United States during the bribery scheme period, had acted only outside the United States, and was not an officer, director, employee, or stockholder of Alstom US, the government argued that conspiracy and accomplice liability was permissible under the FCPA. Since conspiracy and accomplice statutes allow individuals to be charged with conspiracy and aiding and abetting violations that they may not have directly committed, the government contended that the FCPA should not be viewed as providing an exception to this general rule. Accordingly, the government asserted that it should be able to charge Hoskins, a senior vice president of Alstom’s French subsidiary, as a co-conspirator and aider and abettor since it alleged that he was one of the people responsible for selecting and authorizing payments to the consultants used to bribe Indonesian officials to obtain the contract. The government also moved to preclude Hoskins from arguing at trial that he could only be convicted of violating the FCPA if the government first proved that he fell under one of the FCPA’s enumerated categories of defendants.
Agreeing with Hoskins’s argument, the district court partially dismissed the FCPA conspiracy count and denied the government’s motion in limine. The Second Circuit, in turn, agreed with the district court concerning the parameters of FCPA conspiracy and accomplice liability jurisdiction. The court framed the issue as follows:
The central question of the appeal is 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 targeting American persons and companies and their agents, directors, employees, and shareholders, and persons physically present within the United States. In other words, can 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?
In answering this central question, the court started by recognizing that the FCPA established “three clear categories” of persons or companies covered by its provisions:
- Issuers of securities on US exchanges
- Residents or those persons based in the United States
- Foreign persons or businesses taking actions within American territory
Directors, officers, employees, and “agents” of US-based companies also fall under the law's coverage.
The court examined at length the “carefully tailored text” of the FCPA statute 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.” The court also applied the teachings of the US Supreme Court’s 1932 decision in Gebardi v. United States, which held that conspiracy and complicity liability would not lie when Congress demonstrated an affirmative legislative policy to leave some type of participant in a criminal transaction unpunished. In Gebardi, the Supreme Court overturned a conviction under the Mann Act of a woman who had been charged with conspiracy to transport herself over state lines for the purpose of prostitution, finding that there was evidence of an affirmative legislative policy by Congress to leave the woman unpunished. Here, the Second Circuit applied Gebardi to conclude that Congress affirmatively determined to exclude from the FCPA’s liability those persons in Hoskins’s position: non-resident foreign nationals, acting outside American territory, who lack an agency relationship with a US person, and are not officers, directors, employees, or stockholders of American companies.
The court emphasized that the FCPA specifically enumerated its jurisdiction over the following persons in the following scenarios:
- American citizens, nationals, and residents, regardless of whether they violate the FCPA domestically or abroad
- Most American companies, regardless of whether they violate the FCPA domestically or abroad
- 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
- Foreign persons (including foreign nationals and most foreign companies) not within any of the previous categories who violate the FCPA while in the United States
As the court determined, “The single, obvious omission is jurisdiction over a foreign national who acts outside the United States, but not on behalf of an American person or company as an agent, officer, director, employee or stockholder.”
The significance of the Hoskins decision is that it denies the government the use of two of its chief tools—conspiracy and accomplice liability—in prosecuting FCPA cases against those it cannot charge with substantive FCPA counts. Conspiracy charges also have the added benefit of extending the five-year statute of limitations of an FCPA charge since conspiracies are deemed to continue until their illegal objectives have been fulfilled.
Does this result make sense? In his concurrence, Judge Gerard Lynch observed that the FCPA appears to penalize low-level foreign nationals who act as agents of US companies to channel bribes (“minor cogs in the crime”) while immunizing foreign nationals who control, induce, or supervise such violations by American companies from a “high perch in a foreign parent company.” This “perverse result” would be the equivalent, according to Judge Lynch, of “punishing the get-away driver who is paid a small sum to facilitate the bank robber’s escape, but exempting the mastermind who plans the heist.” While Judge Lynch notes that Congress may want to revisit this statute with this case in mind, for now nonresident foreign nationals acting outside American territory without an agency relationship with a US person or company and who are not officers, directors, employees, or stockholders of American companies will not be held liable under the FCPA or related conspiracy or complicity statutes for bribing foreign officials—at least in the Second Circuit.
As with most judicial decisions, the ramifications of this opinion may be felt across regulatory areas where foreign persons conduct business both within and outside the United States. Whether the same limitations would apply, for example, in export control investigations that routinely involve alleged direct or indirect violations of US laws by foreign persons is a question that is likely to arise. The government aggressively pursues foreign persons and foreign companies in the sanctions and export control space, as the many settlements with foreign companies reflect. This Second Circuit decision may result in subtle shifts by the government as it decides how and under what circumstances enforcement can occur. With the increased focus on sanctions that now affect allies as well as adversaries, enforcement actions such as those discussed in the Hoskins case may raise new complications.