August and September 2018 were an active period for significant FCPA-related developments from the Second Circuit and the U.S. Department of Justice (DOJ). Below are the highlights.
Second Circuit’s Decision in Hoskins
On August 24, 2018, in United States v. Hoskins, the Second Circuit held that a nonresident foreign national cannot be held liable for conspiring to violate the FCPA where the foreign national is not an officer, director, employee, shareholder or agent of a U.S. issuer or domestic concern and has not committed an act in furtherance of an FCPA violation while in the United States. In so holding, the Second Circuit rejected DOJ’s broad interpretation of the FCPA’s extraterritorial reach.
Lawrence Hoskins is a British national and former Alstom UK executive based in Paris, who allegedly approved payments to “consultants” who were retained to bribe Indonesian officials as part of a scheme to win a $118 million project to build power stations in Indonesia. Affirming in part and reversing in part the lower court’s dismissal of conspiracy charges against Hoskins, the Second Circuit held that because Hoskins was not a U.S. national, citizen or resident, and he was not accused of having acted in furtherance of the bribery scheme in the United States, he could only be charged as an “agent” of a domestic concern, and not as a “conspirator.”
In 2014, the French parent company, Alstom S.A., pleaded guilty to a two-count criminal information charging the company with violating the FCPA. DOJ also obtained guilty pleas from a number of individuals who had been charged with offenses relating to the allegedly improper payments. Hoskins instead sought dismissal of count one of his indictment, which alleged he had conspired with Alstom U.S. and others to violate the FCPA. Hoskins argued that he could not be liable for conspiring to violate the FCPA because he was a foreign national who had not acted while within the territory of the United States.
The Second Circuit relied primarily on the plain language of the FCPA statute as well as its structure and legislative history in reasoning that Congress had intended to limit the FCPA’s jurisdiction to those types of defendants identified in the statute. The court concluded that the FCPA and the legislative history showed “an affirmative Congressional intent to exclude” persons who were not specifically identified or referenced in the statute. Accordingly, a foreign national like Hoskins, who did not meet the statute’s criteria, generally could not be prosecuted under the FCPA. However, the Second Circuit held that Hoskins could be held liable on the theory that he was acting as an agent of a domestic concern, namely Alstom’s U.S. subsidiary.
DOJ Speech Regarding Corporate Cooperation
At a conference in New York on September 27, 2018, Deputy Assistant Attorney General Matthew Miner told attendees that the DOJ prefers to work cooperatively with businesses to police corporate crime and malfeasance, rather than against them, and that he hopes businesses will see DOJ as a “partner” and not an “adversary.”
Miner, who oversees the Fraud Section, which includes the FCPA Unit, used his remarks to reiterate and emphasize the policies and steps that DOJ has implemented over the last year to encourage corporate cooperation in investigating corporate crime. These policies include the FCPA Corporate Enforcement Policy, under which there is presumption of declination for companies that voluntarily self-disclose violations, fully cooperate with investigators, and remediate through compliance measures and disgorgement of “ill-gotten profits.”
Miner also confirmed that DOJ “will seek to apply the FCPA Corporate Enforcement Policy principles to mergers and acquisitions that uncover potential FCPA violations” and that the policy would be considered “nonbinding guidance” in all corporate criminal cases, not just those involving FCPA violations. Miner stated that the policy expansion is intended to acknowledge that merging or acquiring companies may not be able to become fully aware of any potential wrongdoing until after the transaction is completed, and that DOJ wants to reward companies that promptly voluntarily self-disclose and remediate the wrongdoing. He also cited DOJ’s formal implementation of its Anti-Piling On policy as part of its effort to encourage businesses to voluntarily self-disclose potential violations and to work with DOJ and law enforcement. Miner cited several recent cases in which DOJ’s application of these policies resulted in declinations for companies after they cooperated in the investigation and prosecution of the individuals responsible for the misconduct. Those cases included a non-prosecution agreement with a Brazilian state oil company, Petróleo Brasileiro S.A., that was announced the same day as Miner’s speech.
Petrobras Non-Prosecution Agreement
The DOJ entered into the non-prosecution agreement with Petróleo Brasileiro S.A. (Petrobras), a Brazilian state-owned oil company, to resolve a probe into alleged FCPA violations it committed. Petrobras was subject to the FCPA because it issued securities in the United States. In related proceedings, Petrobras reached a settlement with the U.S. Securities and Exchange Commission (SEC) and an agreement to reach a settlement with the Ministério Público Federal in Brazil. As part of the settlements with the U.S. and Brazilian governments, Petrobras agreed to pay over $85 million each to DOJ and the SEC, and more than $682 million to a Brazilian fund promoting corporate compliance and other anti-corruption initiatives. The DOJ fine reflected a 25 percent discount off the low end of the U.S. Sentencing Guidelines’ fine range in recognition of the company’s “full cooperation and remediation.”
Petrobras admitted that its board authorized millions of dollars in illegal payments to Brazilian politicians and political parties, and that its former executives had accepted bribes from contractors. It also admitted that the payments and bribes caused it to maintain inaccurate financial records to conceal the alleged corruption in violation of the FCPA. The SEC had found in a civil proceeding that Petrobras made misleading statements to investors and failed to maintain adequate controls over its financial statements.
Petrobras’ cooperation and remediation efforts were cited by DOJ as a primary reason for its decision to enter into a non-prosecution agreement with the company and agree to a discounted settlement payment. Although Petrobras had not voluntarily disclosed the alleged misconduct, it had cooperated with U.S. and Brazilian authorities, including providing access to foreign witnesses; producing, organizing and translating requested documents; and providing regular factual presentations to DOJ. Petrobras also replaced its board of directors and executive board, implemented governance reforms and no longer employed any of the individuals implicated in the alleged misconduct. The settlement is unusual because Petrobras is itself a state-owned enterprise, which is normally thought of as an FCPA “victim.” Perhaps this is why, as part of its agreement with DOJ, Petrobras reserved the right to argue that it was not subject to criminal prosecution in the United States because it is an instrumentality of Brazil itself.