On August 24, 2018, the US Court of Appeals for the Second Circuit rejected an effort by the Department of Justice (DOJ) to expand the jurisdictional reach of the Foreign Corrupt Practices Act (FCPA) over foreign nationals. The three-judge panel affirmed the lower court’s ruling in United States v. Hoskins that a non-resident foreign national cannot be charged with conspiracy to violate the FCPA, or with aiding and abetting a violation of the statute, unless he falls within a category of persons covered by the substantive provisions of the Act.
The DOJ historically has relied on expansive use of conspiracy theories to reach conduct by foreign, non-issuer defendants in negotiated FCPA resolutions. The Hoskins decision limits the statute’s reach over foreign persons whose alleged bribery-related crimes take place outside the territory of the United States. As a result, the ruling makes it harder for the DOJ to bring criminal charges in FCPA cases against foreign nationals, particularly those working for foreign companies that are not “issuers” and whose conduct takes place outside the United States.
The ruling is sufficiently narrow in scope, however, that we do not believe it will meaningfully affect the number or types of investigations that the DOJ will pursue in the FCPA arena. Indeed, a second part of the Hoskins ruling explicitly acknowledged that even if the DOJ could not bring conspiracy or complicity charges in this case, it was still free to demonstrate, if it could, that Mr. Hoskins was directly subject to the FCPA’s anti-bribery provisions (or to conspiracy or complicity liability) as an agent of a domestic concern. As a result, we expect the DOJ to stretch its interpretations of those provisions, and/or employ other legal theories (such as under the federal anti-money laundering statutes), in its efforts to prosecute alleged individual wrongdoers.
Lawrence Hoskins is a British citizen who worked as an executive for the UK subsidiary of the French multinational corporation, Alstom SA. Hoskins was one of four company executives charged with facilitating bribes to Indonesian government officials to help the company secure a lucrative energy contract in Indonesia on behalf of Alstom’s Connecticut-based, US subsidiary, Alstom Power, Inc. (Alstom Power).
Hoskins was not employed by the American subsidiary, nor did he travel to the United States during the period in which the alleged bribery scheme was ongoing. Despite this, the DOJ charged Hoskins with 12 counts, including conspiracy, aiding and abetting, and substantive violations of the FCPA. The substantive FCPA counts relied on the theory that Hoskins acted as an agent of and/or aided and abetted Alstom Power (a domestic concern under 15 U.S.C. §78dd-2). Because the government apparently conceded that Hoskins had not been physically present in the United States while the bribery scheme was ongoing, the court had held in an earlier decision that he could not be liable under 15 U.S.C. §78dd-3. Notably, although the Third Superseding Indictment alleged that Alstom SA was listed on the NYSE and an “issuer” until August 2004 – including during a portion of the relevant period – it did not charge Hoskins as an officer, employee, or agent of an issuer under §78dd-1.
Hoskins moved to dismiss part of the first count against him, which charged Hoskins with conspiracy to violate the FCPA. Asserting that criminal liability under the FCPA extended exclusively to clearly defined categories of individuals, Hoskins argued that the government could not circumvent those limitations by charging him with aiding and abetting, or conspiring to violate the FCPA if he did not fall into one of the statute’s expressly enumerated categories of covered persons.
On August 13, 2015, the district court agreed, striking portions of the first count against Hoskins, ruling that he could not be held liable for conspiracy to violate the FCPA if he was ineligible for prosecution for directly violating the statute itself. On March 16, 2016, the district court affirmed its earlier ruling, prompting the government to file an interlocutory appeal. The Second Circuit heard oral arguments on the matter on March 2, 2017.
The Hoskins Decision
More than a year and half later, the Second Circuit panel issued its long-awaited decision. At the outset, the court wrote that it was being asked to decide “whether the government may employ theories of conspiracy or complicity to charge a defendant with violating the FCPA, even if he is not in the categories of persons directly covered by the statute.” In response, the court held that the “government may not expand the extraterritorial reach of the FCPA by recourse to the conspiracy and complicity statutes,” and dismissed the government’s conspiracy and complicity charges accordingly.
In reaching its decision, the Second Circuit first emphasized that the text of the FCPA clearly establishes three categories of persons liable under the FCPA: (1) “issuers” of US securities or any officer, director, employee, or agent of an issuer, or a stockholder acting on the issuer’s behalf using interstate commerce in connection with the payment of bribes; (2) US companies and persons using interstate commerce in connection with the payment of bribes; and (3) foreign persons or businesses engaged in acts to further corrupt schemes, including causing the payment of bribes, while present in the United States.
Judge Rosemary S. Pooler, writing for the unanimous panel, next reframed the central question of the appeal: whether a person “[c]an…be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal[.]”
Addressing the issue of conspiracy and complicity liability first, the court recognized the general principle that liability for conspiracy and aiding and abetting may be established even in cases where the accused cannot be held liable for the underlying substantive offense. The court declared, however, that narrow exceptions to this general rule exist, specifically where the legislative scheme “evinces an affirmative legislative policy to leave the category of defendants omitted from the statutory framework unpunished.”
The Second Circuit relied heavily on the Supreme Court’s 1932 decision in Gebardi v. United States, which held that in those instances where Congress demonstrates an “affirmative legislative policy” to exclude a class of individuals from liability under a criminal statute, the government may not rely on accomplice theories of liability to prosecute those same individuals. Embarking on a thorough examination of the text, structure, and legislative history of the FCPA – going back to its enactment in 1977 and continuing through the 1998 amendments – the three-judge panel concluded that “the structure of the FCPA confirms that Congress’s omission of the class of persons under discussion was not accidental, but instead was a limitation created with surgical precision to limit its jurisdictional reach.” It went on to note that the law “excluded only non-resident foreign nationals outside American territory without an agency relationship with a US person, and who are not officers, directors, employees, or stockholders of American companies.”
As Steptoe’s 2017 FCPA Year in Review & 2018 Q1 Preview noted, the March 2017 appellate arguments on the jurisdictional question focused heavily on the congressional intent behind the FCPA. As a result of its exhaustive analysis of the statute’s legislative history, the Second Circuit held that this history “further demonstrates Congress’s affirmative decision to exclude from liability the class of persons considered in this case and we thus hold that the government may not override that policy using the conspiracy and complicity rules.”
The court examined various provisions of the OECD Anti-Bribery Convention (Convention) and its Commentaries, which the government had argued supported their position. But the court found that the Convention provisions cited by the government were not sufficiently specific to justify a finding that it would be undermining the Convention if it did not hold for the government.
The court also affirmed the relevant portions of the lower court’s decision on totally separate and independent grounds. The Second Circuit held that the presumption against extraterritorial application of the statute in the absence of express congressional authorization obligated it to rule in favor of Hoskins. The court found that the DOJ had failed to establish the requisite legislative intent for more general extraterritorial application as required by governing case law. As a result, the terms of the statute limited its territorial reach and precluded the government from charging Hoskins with conspiracy.
The Second Circuit’s order, however, was not a total victory for Hoskins. Although it had assumed throughout its opinion that he was not an agent of Alstom Power (the US entity), the appellate court ultimately allowed the government to proceed with its efforts to prove that Hoskins acted as an agent of a domestic concern and thus could be held directly liable for substantive violations of the anti-bribery provisions (15 U.S.C. §78dd-2). “Provided that the government makes this showing,” “there is no affirmative legislative policy to leave his conduct unpunished, nor is there an extraterritorial application of the FCPA.” The court stated, therefore, that the government should be allowed to argue that, “as an agent,” Hoskins committed both objects of the conspiracy alleged by the government – “the first object [to violate 78dd-2] by conspiring with employees and other agents of Alstom U.S.” and “the second object [to violate 78dd-3] by conspiring with foreign nationals who conducted relevant acts while in the United States.”
Analysis and Implications
Given the relative paucity of judicial decisions interpreting the FCPA, the Hoskins opinion is significant. The decision addresses some of the long unsettled questions surrounding the contours of the FCPA’s jurisdictional reach over foreign nationals.
The panel showed no hesitation in characterizing section dd-3 of the statute, the anti-bribery provision enacted in 1998 to cover non-issuer foreign persons, as purely territorial. It squarely held that this provision requires conduct in furtherance of a bribe by a person while physically present in US territory – a stringent, territorial nexus requirement not present in the FCPA’s other anti-bribery provisions. Such a reading, while consistent with the language of the statute, has been resisted by the government over the years in favor of a standard closer to the “effects” test used in the antitrust area. For example, the DOJ has taken the position previously that dd-3 jurisdiction is established by causing, through an agent, an act in furtherance of bribery to occur in the United States.
The Hoskins decision does not provide a safe haven from FCPA charges for all foreign nationals acting abroad. The FCPA still applies to foreign officers, directors, employees, agents and stockholders of issuers, whether US- or non-US-based, and of US domestic concerns. Such individuals may be prosecuted under the FCPA even for conduct with a more tenuous connection to the United States.
As a result Hoskins is not the death knell for the FCPA by any means, but it may have limiting effects. Many foreign companies with US business activities are not issuers, and even if a foreign multinational has US operations, their foreign personnel may be able to avoid traveling to the US or taking other steps that would result in their becoming agents of a domestic concern. Moreover, the DOJ has historically relied very heavily on the federal conspiracy statute to pursue FCPA charges against foreign defendants, including for longstanding schemes that may be difficult to prosecute under the FCPA itself for statute of limitations reasons. And foreign prosecutions, while growing, may not yet be sufficiently robust to ensure that foreign co-conspirators are brought to justice by their home countries. At the same time, the court in Hoskins made clear the statute was not a mandate for the United States to police the world.
The decision thus represents a rare and notable check on the increasingly aggressive jurisdictional claims US enforcement authorities have advanced in recent years. Such expansive claims by federal prosecutors have become central features, if not necessary components, of successful FCPA prosecutions and remain unchallenged in most cases.