Lawrence Hoskins, a British citizen and former executive at a British subsidiary of a French multinational transportation and energy company, was convicted last November of money laundering and violations of the Foreign Corrupt Practices Act (FCPA). In a rarely granted judgment of acquittal last month, the district court sided with the defendant on the FCPA charges, finding that the government did not present sufficient evidence at trial to support the jury's guilty verdict on those charges. The decision will likely make it more difficult for the government to charge non-U.S. defendants in certain FCPA cases. The decision serves as a warning and a restraint on the Department of Justice's (DOJ) power to charge foreign nationals acting outside the United States.
The government indicted Hoskins in 2013 on charges that he had hired consultants to bribe Indonesian officials to grant a $118 million power contract to an American subsidiary of the French corporate parent. In the same decision in which it reversed the jury's conviction on the FCPA charges, the court upheld Hoskins's conviction on money laundering charges related to the same facts. Despite the fact that Hoskins is due to serve prison time on the money laundering charges, the court's reversal on the FCPA charges will likely have a profound effect on the DOJ's approach to charging non-U.S. defendants in FCPA cases.
The district court's acquittal was teed up by an interlocutory decision by the Second Circuit in 2018, which held that, in light of the fact that Hoskins did not travel to the United States while the bribery scheme was ongoing, he could only be liable for FCPA violations if he was found to be an agent of the American subsidiary that was trying to secure the Indonesian power contract. As a result, the district court's decision reads more like a case about agency law than the extraterritorial application of the FCPA.
The district court explained that a traditional agency relationship has three required elements: (1) a manifestation by the principal that the agent will act on his behalf with respect to a specific undertaking; (2) the agent's acceptance of the undertaking; and (3) an understanding by both parties that the principal will be in control of the undertaking.
Finding the first element satisfied, the court focused on whether the government had introduced sufficient evidence that Hoskins had agreed to submit to the American subsidiary's control. Drilling down even further, the court wrote that "first and foremost, the 'essential element of agency is the principal's right to control the agent's actions, not the broader project on which the purported agent works.'" The court found that the government had relied on evidence showing only that the subsidiary generally controlled efforts to obtain the power contract - not that it had the power to control Mr. Hoskins's actions specifically. The court found that, while the American subsidiary controlled "key specifications" concerning efforts to retain consultants on the project, such as whom to retain and how much to pay them, the government failed to identify "any evidence that [the subsidiary] had a right of interim control over Mr. Hoskins's actions to procure consultants according to [the subsidiary's] specifications." (emphasis in original). Consequently, the court found that no rational jury could have concluded beyond a reasonable doubt that Hoskins had been an agent of the American subsidiary, and reversed the jury's conviction on the FCPA counts.
In concluding that the government had failed to identify any evidence that the American subsidiary had controlled Hoskins's actions, the court considered but dismissed evidence that senior employees of the subsidiary had instructed Hoskins to perform specific actions, such as circulating a revised consultancy agreement and changing the date on a document before faxing it to one of the consultants. The judge was not persuaded that such evidence demonstrated anything other than that the subsidiary had the power to control the terms of the consultancy arrangements and that Hoskins had assisted them in that process. The court's conclusion was reinforced by evidence showing that, unlike the usual case in which a third party acts as an agent, the American subsidiary lacked the capacity to fire, reassign, demote, or impact the compensation of Hoskins. The court referred to these powers as "the indicia of control which are typical of an agency relationship." The court's emphasis on these powers is a significant setback for the government, as evidence that a principal had the power to fire, demote, or impact the compensation of a purported agent will be particularly hard to come by where, as in Mr. Hoskins's case, that person is a senior executive at an affiliate of the principal, rather than a third-party consultant.
Prior to the court's decision, the DOJ had warned that a reversal of Hoskins's conviction on the FCPA charges would effectively create a loophole protecting foreign nationals who engage in bribery schemes on behalf of U.S. entities. It is true that the district court's decision sets the bar much higher for the government to win convictions against people who, like Hoskins, are foreign nationals working as senior executives for foreign affiliates of U.S. companies and who never set foot in the United States during the course of the alleged bribery scheme. However, the court's decision does not immunize a class of actors against FCPA charges. Rather, it illustrates what happens when prosecutors try to stretch the extraterritorial reach of a statute further than it was intended to go (an issue for Congress, not the courts). The employer/employee relationship does not lend itself well to agency law. Agents are usually third-party consultants - not employees, and especially not senior executives. When agents are third parties, it is usually quick work to prove that the company that hired them had the capacity to hire, fire, and control their actions. Where prosecutors seek to charge company executives, however, it is far more difficult to apply traditional agency law given the corporate hierarchies and multiple decision-makers within an international organization. As a result, it is likely that individuals will be charged only if they took some action in the United States in support of a bribery scheme.