A Foreign Corrupt Practices Act case that has been the center of a back-and-forth court battle for nearly a decade appears to have come to an end, giving chief compliance officers and in-house counsel at least some degree of finality regarding the jurisdictional scope of the FCPA.
In United States v. Hoskins, a divided three-judge panel for the U.S. Court of Appeals for the Second Circuit held on Aug. 12 the foreign national at the heart of the case had not acted as an “agent of a domestic concern” and thus fell outside the extraterritorial reach of the FCPA.
The underlying dispute concerned FCPA charges brought by the Department of Justice (DOJ) in 2013 against Lawrence Hoskins, a U.K. citizen and former senior executive at the British subsidiary of French power and transportation company Alstom.
In 2014, Alstom pleaded guilty and agreed to pay a $772 million criminal penalty for FCPA violations, resolving charges of paying tens of millions of dollars in bribes to government officials in several countries, including Indonesia, in exchange for energy contracts. The DOJ alleged parts of the scheme took place in the United States and that Hoskins and three other Alstom executives, some of whom worked for U.S. subsidiary Alstom Power Inc. (API), bribed Indonesian officials to secure a $118 million power plant contract, known as the Tarahan Project.
Initially, in its case before the U.S. District Court in the District of Connecticut, the DOJ charged Hoskins on three theories of liability: that he was a co-conspirator; that he aided and abetted the FCPA violations committed by API, its employees, and foreign consultants; and that he acted as an “agent” of API.
Hoskins argued he didn’t fall under the FCPA, as defined by the specific terms of the statute, because he was not a U.S. citizen, was not employed by a U.S. company, and never stepped foot in the United States while the bribery scheme was occurring. The district court sided with Hoskins.
In 2018, the Second Circuit on appeal affirmed the district court’s finding, ruling a foreign national operating outside U.S. territory cannot be charged with conspiring to violate the FCPA or for aiding and abetting violations.
“For purposes of this appeal, we assume that Hoskins was neither an employee nor an agent of a domestic concern and, therefore, does not fall within the terms of the statute,” Circuit Judge Gerard Lynch wrote.
The Second Circuit’s decision did not mark the end of the case, as the court left the door open for prosecutors to convict Hoskins for FCPA violations if they could prove at trial he was an “agent of a domestic concern.”
According to evidence presented at trial, prosecutors focused on Hoskins’s direct role in choosing which Indonesian government officials to bribe, which consultants to hire to help conceal the bribes, and deciding how and when to make the bribery payments.
In November 2019, a jury convicted Hoskins for FCPA violations and money laundering charges in connection with the bribery scheme, for which he served 15 months in prison. In February 2020, the district court granted Hoskins’s motion for acquittal regarding the FCPA counts but not for the money laundering charges.
Once again, on appeal, the Second Circuit last month upheld the district court’s ruling. In its decision, the Second Circuit noted that “[c]onspicuously missing from the evidence” was any indication API’s executives who oversaw the scheme “controlled Hoskins’s actions, as Hoskins and his API counterparts operated under separate, parallel employment structures.”
API’s representatives did not hire Hoskins, had no authority to fire him, and did not set or control his compensation. These factors, the court wrote, are “fundamental to the question of whether Hoskins was an agent because the ‘chief justifications for the principal’s accountability for the agent’s acts are the principal’s ability to select and control the agent and to terminate the agency relationship, together with the fact that the agent has agreed expressly or implicitly to act on the principal’s behalf,’” with the court citing the American Law Institute’s “Restatement of the Law of Agency, Third.”
Assessing case impact
Lucinda Low, a partner at law firm Steptoe & Johnson, called the Second Circuit’s decision a “setback for the government.” She said it has the potential to open the door for foreign nationals involved in aiding U.S. companies with foreign bribery schemes to escape liability under the FCPA.
“I think it’s a roadmap for how to organize yourself as a multinational company to try to shield your foreign national employees from FCPA jurisdiction,” she said.
Judge Raymond Lohier expressed as much in his dissenting opinion in the case, stating U.S. companies “will be motivated to organize themselves to avoid exercising control over the employees of foreign-affiliated companies who engage in bribery overseas.”
That said, the FCPA is “not the only arrow in [the DOJ’s] quiver,” Low said. The decision might push the agency to use other theories that might have a better chance of success, including—as in Hoskins’s case—money laundering charges against foreign nationals alleged to be involved in bribery schemes, she said.
In addition to money laundering statutes, the DOJ might use wire fraud charges, as it did in its 2021 case against Credit Suisse, said Mark Bini, a former federal and state prosecutor and now a partner at law firm Reed Smith. Securities fraud is another statute that might be brought to bear in extraterritorial cases, while not necessarily in the FCPA context, he said.
Not all courts are in alignment with the Second Circuit’s finding. In United States v. Firtash, for example, Judge Rebecca Pallmeyer of the U.S. District Court for the Eastern District of Illinois denied a motion to dismiss filed by Ukrainian oligarch Dmitry Firtash, who was charged by the DOJ in 2013 with bribing government officials in India. Firtash, like Hoskins, argued he couldn’t be liable under the FCPA because he wasn’t present in the United States during the alleged scheme and was not an agent of domestic concern.
Citing Seventh Circuit precedent, Judge Pallmeyer ruled Firtash could be held liable under the theory of co-conspirator liability. Another business associate with whom Firtash engaged in the alleged bribery scheme, Gajendra Lal, was a permanent U.S. resident and thus a domestic concern, making Firtash criminally liable under the FCPA.
Given the circuit split regarding secondary liability under the FCPA, “these issues may end up before the U.S. Supreme Court, Congress, or both,” Low said.
The Hoskins case going that far is unlikely though, said Bini. “I don’t think the DOJ would push it to the Supreme Court,” he said. While the current Supreme Court is “pro law enforcement,” it might take the view the DOJ in this case is pushing the extraterritorial boundaries of the FCPA too far, he said.
“While the Second Circuit’s decision did put some curbs on the outer limits of FCPA jurisdiction, the DOJ, at the end of the day, still got money laundering convictions,” Bini said. “So, while [the Hoskins ruling] provides some comfort to companies on the limits of FCPA liability, I do think you can expect to see the DOJ continue to aggressively pursue these types of cases.”