A Foreign Corrupt Practices Act case that has been the subject of a back-and-forth legal dispute for over ten years seems to have reached a conclusion, providing chief compliance officers and in-house counsel with at least some measure of clarity regarding the FCPA's jurisdictional reach.
In the case of United States v. Hoskins, a divided three-judge panel for the U.S. Court of Appeals for the Second Circuit determined on August 12 that the foreign national at issue had not acted as a "agent of a domestic concern" and, as a result, was not subject to the FCPA's extraterritorial reach.
The central issue included allegations of FCPA violations made by the Department of Justice (DOJ) against Lawrence Hoskins, a British national and former senior officer at Alstom's British subsidiary.
In order to resolve allegations that it paid tens of millions of dollars in bribes to government officials in many countries, including Indonesia, in return for energy contracts, Alstom pled guilty to FCPA crimes in 2014 and agreed to pay a $772 million criminal penalty. The DOJ claimed that the Tarahan Project, a $118 million power plant deal, was obtained by bribery of Indonesian authorities by Hoskins and three other Alstom employees, some of whom worked for American subsidiary Alstom Power Inc. (API).
The DOJ first accused Hoskins of three offenses in its lawsuit before the U.S. District Court for the District of Connecticut: conspiracy, aiding and abetting FCPA crimes by API, its employees, and foreign consultants, and acting as a "agent" of API.
Hoskins maintained that because he was not a citizen of the United States, was not employed by a U.S. corporation, and never set foot in the country while the bribery scheme was in progress, he did not come within the FCPA as it was defined by the particular language of the legislation. The district court took Hoskins' side.
A foreign citizen operating outside of U.S. territory cannot be prosecuted with conspiring to violate the FCPA or with aiding and abetting crimes, according to a 2018 appellate decision by the Second Circuit.
Circuit Judge Gerard Lynch stated, "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."
The case was not over with the Second Circuit is ruling because the court left the possibility open for prosecutors to prosecute Hoskins for FCPA crimes if they could demonstrate at trial that he was a "agent of a domestic concern."
Prosecutors focused on Hoskins's direct involvement in selecting which Indonesian government officials to bribe, selecting consultants to assist hide the bribes, and determining how and when to execute the bribery payments, according to evidence produced at trial.
Hoskins was sentenced to 15 months in prison in November 2019 after being found guilty by a jury of violating the FCPA and money laundering charges in connection with the bribery conspiracy. The district court approved Hoskins' plea for acquittal with relation to the FCPA offenses in February 2020, but denied it with regard to the money laundering allegations.
The Second Circuit last month affirmed the district court's decision once more on appeal. The Second Circuit highlighted in its ruling that there was "conspicuously missing from the evidence" any proof that the scheme's executives at API "controlled Hoskins's actions, as Hoskins and his API counterparts operated under separate, parallel employment structures."
Hoskins was not hired by API's representatives, they had no power to get rid of him, and they had no say in determining or managing his pay. The American Law Institute's "Restatement of the Law of Agency," which the court cited, states that these factors 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."
A partner at the law firm Steptoe & Johnson named Lucinda Low described the Second Circuit is ruling as a "setback for the government." She claimed it might give foreign nationals interested in assisting American businesses with overseas bribery schemes a way to avoid legal repercussions under the FCPA.
In order to try to protect your foreign national employees from FCPA jurisdiction, she stated, "I think it is a roadmap for how to organize yourself as a multinational company."
In his dissenting judgment in the case, Judge Raymond Lohier made this point, writing that American businesses "will be motivated to organize themselves to avoid exercising control over the employees of foreign-affiliated companies who engage in bribery overseas."
However, Low noted that the FCPA is "not the only arrow in [the DOJ's] quiver." According to her, the judgment may force the agency to pursue other ideas that would have a higher chance of succeeding, such as money laundering accusations against foreign people who are allegedly participating in bribery schemes, as was done in Hoskins' case.
According to Mark Bini, a former federal and state prosecutor who is currently a partner at the law firm Reed Smith, the DOJ may also utilize wire fraud charges in addition to money laundering legislation, as it did in its 2021 case against Credit Suisse. Although not necessary in the framework of the FCPA, securities fraud is another legislation that might be used in extraterritorial instances, according to him.
Not every court concurs with the Second Circuit is conclusion. For instance, in United States v. Firtash, Judge Rebecca Pallmeyer of the U.S. District Court for the Eastern District of Illinois rejected a petition to dismiss made by Ukrainian tycoon Dmitry Firtash, who was accused by the DOJ of bribing authorities in India in 2013. Like Hoskins, Firtash claimed that because he was not in the country at the time of the alleged conspiracy and was not an agent of a domestic firm, he could not be held accountable under the FCPA.
Judge Pallmeyer determined Firtash might be held accountable on the principle of co-conspirator culpability by citing Seventh Circuit precedent. The FCPA makes Firtash criminally accountable since Gajendra Lal, another business colleague with whom Firtash allegedly participated in the bribery scheme, was a permanent resident of the United States and so a domestic concern.
According to Low, "these issues may end up before the U.S. Supreme Court, Congress, or both" because of the circuit divide on secondary responsibility under the FCPA.
Although doubtful, Bini noted that the Hoskins case may go that far. He stated, "I don’t think the DOJ would push it to the Supreme Court." The DOJ in this case may be seen as beyond the FCPA's extraterritorial bounds, he added, even if the current Supreme Court is "pro law enforcement."
"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 noted. "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."
By fLEXI tEAM