On March 6, 2020, one of the most closely watched Foreign Corrupt Practices Act ("FCPA") cases of the past several yearsUnited States v. Lawrence Hoskinsconcluded (pending appeal by the government) when U.S. District Court Judge Janet Bond Arterton sentenced Hoskins to fifteen months in prison based on money laundering charges relating to his participation in a multimillion-dollar bribery scheme. The jury had also convicted Hoskins of violating the FCPA, but Judge Arterton overturned the conviction on FCPA charges on February 26, 2020, ruling that the government had failed to prove that Hoskins was subject to the jurisdiction of the FCPA. United States v. Hoskins, 12-cr-238, 2020 U.S. Dist. LEXIS 32663, at *28-29 (D. Conn. Feb. 26, 2020). While Judge Arterton's February 26, 2020 ruling is fact intensive, it represents a potent reminder that the jurisdictional reach of the FCPA is limited and provides FCPA defense counsel with a powerful new precedent when advocating on behalf of foreign entities and individuals who are the subject of FCPA investigations.

Background

The Bribery Scheme

In 2013, federal prosecutors in Connecticut indicted Hoskins, a citizen of the United Kingdom and an employee of a United Kingdom-based subsidiary of the French conglomerate Alstom SA, for participating in a multimillion-dollar bribery scheme in Indonesia. According to the indictment, Alstom SA and affiliated entities (collectively, "Alstom") hired two consultants to serve as conduits for bribes that were directed to Indonesian officials who had the ability to influence the award of a major construction contract. Hoskins allegedly approved the hiring of these consultants and authorized payments to them while knowing that "[t]he consultants' primary purpose was not to provide legitimate consulting services," but "was instead to pay bribes to Indonesian officials who had the ability to influence the award of the Tarahan Project contract." Third Superseding Indictment 7, United States v. Hoskins. As a result of this scheme, Alstom allegedly secured a valuable contract from a state-controlled electricity company in Indonesia (the "Tarahan Project").

Alstom SA and U.S. Individuals Plead Guilty

In 2014, Alstom SA pleaded guilty to two counts of violating the FCPA in connection with the bribery scheme described above and a number of other bribery schemes and paid a criminal penalty of $772 million; this is one of the largest criminal monetary penalties ever imposed in an FCPA case. Altogether, Alstom SA paid tens of millions of dollars in bribes to win $4 billion in contracts.

To date, five individuals, four of whom are former executives of Alstom SA or its subsidiaries, have pleaded guilty to related charges. All of these individuals, unlike Hoskins, were either United States citizens or residents. As such, they were all plainly subject to the FCPA's anti-bribery provisions.

Hoskins Moves to Dismiss the FCPA Charges

In 2015, Hoskins successfully moved to dismiss the conspiracy count of the indictment against him, arguing that a foreign national who worked for a foreign company and had not traveled to the United States was not subject to FCPA's anti-bribery provisions. See United States v. Hoskins, 123 F. Supp. 3d 316, 327 (D. Conn. 2015).

The anti-bribery provisions of the FCPA apply to three categories of entities and individuals: 1) issuers of certain types of public securities (or any officer, director, agent, employee, or stockholder acting on an issuer's behalf), 2) United States businesses and United States individuals (or any officer, director, agent, employee, or stockholder acting on behalf of a United States business), and 3) foreign entities and individuals that act in furtherance of bribery schemes while present in the United States. See United States v. Hoskins, 902 F.3d 69, 84-85 (2d Cir. 2018).

Hoskins and the government agreed that Hoskins was employed by a United Kingdom business, and that he had never traveled to the United States as part of the alleged bribery scheme. Thus, in order to assert jurisdiction under the FCPA, the government needed to allege that Hoskins was acting as an agent of a United States business, or a "domestic concern" in FCPA parlanceAlstom Power, Inc. ("API"), the United States subsidiary of Alstom SA; Hoskins' United Kingdom employer, Alstom U.K Ltd. ("Alstom U.K."), was also a subsidiary of Alstom SA. The government asserted that Hoskins could be prosecuted under the FCPA based on conspiracy and aiding and abetting theories even if Hoskins could not be prosecuted for a primary violation of the FCPA.

Judge Arterton granted, in part, Hoskins' motion to dismiss, holding "that Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability." Hoskins, 123 F. Supp. 3d at 327 (D. Conn. 2015). The government then appealed to the Second Circuit.

As discussed in more detail in our August 31, 2018, client memorandum entitled "Second Circuit Decision Limits the Extraterritorial Reach of the Foreign Corrupt Practices Act," the Second Circuit unanimously rejected the government's attempt to use aiding and abetting and conspiracy theories to prosecute a foreign national (who neither lived nor engaged in any alleged conduct in the United States) for violating the FCPA. Hoskins, 902 F.3d at 92. Nevertheless, the Second Circuit found that Hoskins could still be convicted of violating the FCPA (and conspiring to violate the FCPA) if the government could prove that Hoskins was an agent of a domestic concern (i.e., Alstom's United States subsidiary, API). Id. at 98.

Hoskins Is Convicted

Did Hoskins act as an agent of API in connection with the bribery scheme? Hoskins was Senior Vice President for the Asia Region in Alstom's "International Network," a department that supported all of Alstom's efforts to secure contracts around the world. His responsibilities included oversight of the hiring of consultants by Alstom SA and its subsidiaries, including API.

The government asserted at trial that Hoskins was an agent of API because API had final approval over whether to hire the consultants for the Tarahan Project, the terms of any consulting agreement, and how much money the consultants would be paid. Judge Arterton noted "that the Government introduced evidence which would permit a rational jury to conclude that API both 1) controlled the hiring of consultants for the Tarahan Project, and 2) gave Mr. Hoskins instructions, which he followed." Hoskins, 2020 U.S. Dist. LEXIS 32663, at *21.

Hoskins, however, maintained (and Judge Arterton agreed) that this was not enough to prove that Hoskins was an agent of API. At trial, Hoskins established that no one at API had any authority to control the work that he was performing, and that API lacked the authority to supervise or terminate him because he was employed by a different entity, Alstom U.K. See id. at *5-6. For example, Hoskins argued that Alstom's corporate records "demonstrate that API did not have the right to exercise control over him," and that his "reporting hierarchy was [] entirely distinct from API: no one from API reported to Mr. Hoskins, and Mr. Hoskins did not report to anyone from API." Id. at *11.

The FCPA does not define the term "agent," but Hoskins and the government generally agreed that the definition "should be drawn from traditional agency law principles." Id. at *6 n.1. Judge Arterton ultimately instructed the jury that three factors needed to be present to establish "an agency relationship": (i) "a manifestation by the principal that the agent will act for it"; (ii) "acceptance by the agent of the undertaking"; and (iii) "an understanding between the agent and the principal that the principal will be in control of the undertaking." Id. Under these instructions, the jury found Hoskins guilty of one count of conspiracy to violate the FCPA and six counts of violating the FCPA. The jury also found Hoskins guilty of separate conspiracy and money laundering counts relating to the same underlying conduct.

The Court Grants Hoskins' Motion for a Judgment of Acquittal on the FCPA Counts

Following his conviction, Hoskins moved for a judgment of acquittal on all counts. Judge Arterton granted the motion for acquittal with respect to the FCPA counts because she found that "the evidence adduced at trial cannot support the conclusion that Mr. Hoskins acted subject to API control such that Mr. Hoskins was an agent of API." Hoskins, 2020 U.S. Dist. LEXIS 32663, at *22.

In reaching that conclusion, Judge Arterton focused on the lack of "interim control" that API had over Hoskins. See id. at *8-9 & *24-25. Judge Arterton explained that the "right of control presupposes that the principal retains the capacity throughout the relationship to assess the agent's performance, provide instructions to the agent, and terminate the agency relationship by revoking the agent's authority." Id. at *9. Judge Arterton stated that "absent any evidence that API had a right of interim control over Mr. Hoskins's actions to procure consultants according to API's specifications, a rational jury could not determine beyond a reasonable doubt that Mr. Hoskins was an agent of API." Id. at *24. Judge Arterton noted that the Second Circuit had previously held that "no agency relationship has been established where [the principal] lacks interim control over how the purported agent performs the task `beyond the initial specifications.'" Id. at *8 (quoting Johnson v. Priceline.com, Inc., 711 F.3d 271, 278-79 (2d Cir. 2013)).

Judge Arterton also concluded that "none of the indicia of control which are typical of any agency relationship are present here." Hoskins, 2020 U.S. Dist. LEXIS 32663, at *26. For example, Judge Arterton held that "[t]he principal's authority to terminate the agency relationship is especially important." Id. at *27. Judge Arterton focused on the fact that API had no ability to "fire, reassign, demote, or impact the compensation of Mr. Hoskins." Id. at *28. Judge Arterton also noted that the government failed to present any "evidence that would support the conclusion that anyone at API had the power to terminate Mr. Hoskins's authority to participate in the hiring of consultants for the Tarahan Project, to assess Mr. Hoskins's performance, or to otherwise exert control over his actions." Id.

On March 9, 2020, the government filed notice that it would appeal Judge Arterton's February 26, 2020 decision to the Second Circuit.

Observations

Judge Arterton's ruling in Hoskins is important for several reasons. First, as noted above, Hoskins serves to reinforce the clear jurisdictional limitations that Congress hardwired into the FCPA, and diminishes the ability of the government to rely on agency theories to expand the reach of the FCPA. For many years, negotiated resolutions, such as deferred prosecution agreements and settled orders, have significantly blurred those jurisdictional limitations. Under Hoskins, defense counsel can rely on corporate formalities, employment relationships, and similar factors to argue that many foreign individuals do not qualify as agents of a "domestic concern" for purposes of the FCPA. Of course, we expect that the government will also be focused on gathering evidence during investigations relating to these factors.

Second, Hoskins demonstrates the value of litigating FCPA matters in appropriate circumstances, especially when defending individuals who face jail time and other life-changing penalties. For most of the FCPA's 43 year history, the "law" relating to the FCPA has largely consisted of negotiated resolutions. The FCPA resource guide confirms this reality, in that much of the "authority" cited in the guide concerns negotiated (rather than fully litigated) resolutions in which the government typically has the upper hand in framing and describing the issues and facts. While there has been a relatively recent uptick in the number of litigated FCPA cases, there is still a dearth of case law interpreting the FCPA. This provides fodder for defense counsel to make novel legal arguments, often on issues of first impression.

Finally, we note that the practical impact of Hoskins (including for Hoskins himself) may be limited. While Hoskins prevailed on his agency-related arguments, Judge Arterton upheld his money laundering convictions and sentenced him to a fifteen-month jail sentence on that basis. The Department of Justice has increasingly charged money laundering violations side-by-side with substantive FCPA violations, targeting the same underlying schemes. This trend is likely to continue. As was the case in Hoskins, the jurisdictional requirements for money laundering may be less onerous on the government than the jurisdictional requirements under the FCPA. For example, in Hoskins, the government established a sufficient nexus to the United States for purposes of the money laundering statute by proving that Hoskins knew, among other things, that "payments would pass through API in Windsor, Connecticut[,]" and that "it was known within Alstom that payments to consultants began in Connecticut...." 2020 U.S. Dist. LEXIS 32663, at *34 (D. Conn. Feb. 26, 2020). Additionally, as we noted, the government has appealed Judge Arterton's February 26, 2020 decision to the Second Circuit; as such, the law regarding "agency" liability under the FCPA will remain in flux for some time.