Any case law concerning the Foreign Corrupt Practices Act is rare, which is why compliance officers and in-house counsel should take a close look at a recent federal appeals court decision that clarifies the jurisdictional scope of the FCPA.
In the case, U.S. v. Hoskins, a three-judge panel for the Court of Appeals for the Second Circuit on Aug. 24 unanimously held that a foreign national who does not otherwise fall under the specific categories of defendants described in the statute cannot be held liable under the theory that the foreign national acted as an accomplice or co-conspirator with a U.S. company or individual.
The Department of Justice declined comment, but those in the FCPA world say the case is significant for several reasons. Firstly, it’s not uncommon for the Department of Justice to aggressively interpret the scope of its FCPA jurisdiction, but because most corporate defendants choose to settle their FCPA cases out of court, the Justice Department’s often broad reading of the FCPA largely goes untested.
Prior to the Second Circuit’s decision, for example, the Justice Department settled several high-profile FCPA cases in recent years, in which it appears to have relied on the same conspiracy and aiding and abetting theories like the ones invalidated in Hoskins. One example concerns the TSKJ joint venture, in which several foreign companies—Marubeni, JGC, and Snamprogetti—were charged in 2012 with conspiracy and aiding and abetting violations of the FCPA.
Post-Hoskins, foreign companies under an FCPA investigation may now have a stronger jurisdictional defense. “Procedurally, the decision is important because it encourages companies and individuals to fight some of the Department of Justice’s overbroad interpretations of the FCPA. It gives them more incentive to say, ‘We might get a better ruling if we go to court,’” says Mark Srere, a partner at law firm Bryan Cave. “When you put the government to proof in these cases, they often don’t prevail.”
The underlying dispute concerned FCPA charges brought by the Justice Department against Lawrence Hoskins, a U.K. citizen employed by the U.K.-based subsidiary of French power and transportation company Alstom. Hoskins was assigned to work with a French subsidiary of Alstom on a project in Indonesia.
In 2014, Alstom had pleaded guilty and agreed to pay a $772 million criminal penalty for FCPA violations to resolve charges that Alstom paid tens of millions of dollars in bribes to government officials in several countries in exchange for energy contracts, including in Indonesia, Saudi Arabia, Egypt, the Bahamas, and Taiwan.
The government alleges that several parts of the scheme took place in the United States. As part of that scheme, Hoskins and three other Alstom executives, some of whom worked for Alstom’s U.S.-based subsidiary, bribed Indonesian officials to secure a $118-million contract for an infrastructure project in Indonesia.
The Justice Department conceded that, although Hoskins “repeatedly e-mailed and called” U.S.-based co-conspirators regarding the scheme while they were in the United States, Hoskins himself never set foot in the United States while the scheme was ongoing. Nevertheless, the government indicted Hoskins for violating the FCPA by acting as an “agent” of Alstom’s U.S. subsidiary, and for conspiring to violate the FCPA with employees and other agents of the U.S. subsidiary.
In 2015, the U.S. District Court for the District of Connecticut dismissed both charges in favor of Hoskins, prompting the government to file an interlocutory appeal. On appeal, the Second Circuit agreed with the district court “that the FCPA’s carefully-drawn limitations do not comport with the government’s use of the complicity or conspiracy statues in this case,” the opinion stated.
Relying on the plain text of the statute, the court laid out the three categories of entities and individuals subject to FCPA jurisdiction:
Issuers of securities listed on U.S. stock exchanges—and their officers, directors, employees, and agents, if they use interstate commerce in connection with the payment of bribes.
oreign non-issuers and individuals, if any conduct related to a corrupt scheme was committed within the United States; and
“Domestic concerns” (U.S. entities, and their officers, directors, employees, and agents) for conduct committed anywhere in the world.
“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,” the opinion stated. In writing the opinion for the court, Circuit Judge Rosemary Pooler said that adopting the government’s overbroad view “would transform the FCPA into a law that purports to rule the world.” Consequently, the court rejected the government’s attempt to use conspiracy and accomplice theories to prosecute Hoskins.
The Second Circuit’s ruling directly contradicts the FCPA Resource Guide, which states that “individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.”
Characterizing Hoskins as “a close and difficult case,” Circuit Judge Gerard Lynch noted that longstanding principle and precedent “reinforces what the plain language of the conspiracy and aiding and abetting statutes command.”
“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—but accomplice and conspiracy liability are generally not so limited,” Lynch wrote. He added that Congress “might want to revisit the statute with this case in mind.”
That the Second Circuit undertook such an exhaustive review of the FCPA’s legislative history in its opinion is also notable. “If other courts are willing to look at the legislative history of the FCPA, that same legislative history could provide some pushback on some other aggressive theories that the DOJ has about the FCPA,” says Wallace Dietz, a member of law firm Bass, Berry & Sims.
To be clear, this case is not over. The Second Circuit reversed the district court’s finding that Hoskins did not act as an “agent” of a domestic concern. This means that Hoskins can still be prosecuted under the FCPA, if the government can prove he was an agent of a domestic concern.
“Joint ventures and other entities or individuals outside the United States, should take a very hard look and make sure there is clear, direct jurisdiction over them under the FCPA,” says Colin Jennings, a partner at Squire Patton Boggs. “A lot of tough conversations may occur between folks under investigation and the Department as people work through the scope of what is an ‘agent.’”
That issue may be addressed in Hoskins, Jennings says, but it may also become a new area of jurisprudence: “Where do you create enough of an ‘agent’ relationship to generate extraterritorial liability under the FCPA?’”
“As one of the rare court opinions interpreting the FCPA, the Second Circuit’s decision in Hoskins suggests that, if challenged, the DOJ’s historically expansive assertion of jurisdiction over foreign companies and individuals may be circumscribed in the face of judicial scrutiny,” says Margot Laporte, a litigation associate at Richards Kibbe & Orbe.
Aside from the overall significance of the decision, it’s important to note that this is still the opinion of just one appellate court. “It doesn’t mean that every circuit will come out the same way if they considered this issue,” Laporte says.
She also draws attention to the “very fact-specific” nature of the case—a foreign national who had no contact with the United States and whose conduct was committed entirely overseas (notwithstanding the fact that the company in question was subject to the FCPA). As such, the decision won’t likely alter the regulatory and enforcement landscape for the large proportion of companies and individuals that have a U.S. nexus, Laporte says.
Compliance officers, in-house counsel, and other executives of multinational companies “should anticipate that the Department of Justice will continue to aggressively enforce the FCPA, even based on a minimal U.S. nexus,” Laporte adds. “They should continue to implement FCPA compliance policies and procedures in that vein.”