In a much-anticipated decision, the U.S. Court of Appeals for the Second Circuit ruled Friday that the Foreign Corrupt Practices Act (FCPA) did not apply to a foreign national acting outside the United States without direct ties to U.S. entities. Specifically, the court held, “the FCPA does not impose liability on a foreign national who is not an agent, employee, officer, director or shareholder of an American issuer or domestic concern — unless that person commits a crime within the territory of the United States.”1
The three-judge panel unanimously2 rejected the government’s effort to apply “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 sum, the opinion limits the extraterritorial application of the FCPA to the three categories of persons clearly delineated in the statute and, rejects the government’s attempt to expand the reach to foreign persons, who do not otherwise fall within the statute’s categories, by the use of conspiracy and complicity theories.
The Department of Justice (DOJ) alleged that Lawrence Hoskins (Hoskins), a British native and a former executive of Alstom S.A. (Alstom), a large global company headquartered in France, was part of a scheme to bribe officials in Indonesia to secure a $118 million contract from the Indonesian government. The alleged bribery scheme focused on Alstom’s American subsidiary (Alstom U.S.) and various individuals associated with Alstom-retained consultants for the express purpose of bribing government officials in Indonesia to secure the contract.
The government alleged that Hoskins, who has never been employed by Alstom U.S., was one of the “people responsible for approving the selection of, and authorizing payments to, [the consultants], knowing that a portion of the payments to [the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the [contract].” The government alleged that the consultants maintained a bank account in the United States, that Alstom and its business partners in the United States deposited money into that account, and that multiple Alstom U.S. employees met and discussed the alleged bribery scheme while in the United States. The DOJ also alleged that Hoskins “repeatedly emailed and called” his alleged U.S.-based coconspirators regarding the scheme while they were in the United States, but conceded that Hoskins did not travel to the United States while the alleged scheme was ongoing.
Who is Covered by the FCPA?
The FCPA’s anti-bribery provisions apply to:
- Issuers: Any company, foreign or domestic, with a class of securities listed on a national securities exchange in the United States, or any officers, directors, or agents of such issuers.
- Domestic Concerns: Individuals who are citizens, nationals or residents of the United States and entities organized under the laws of, or that have their principal place of business in, the United States.
- Foreign individuals or entities that do not qualify as issuers or domestic concerns are still liable if any act related to their corrupt scheme occurred within the United States.
The District Court’s Ruling and the Second Circuit’s Reversal, in Part
The government indicted Hoskins for violating the FCPA by acting as an “agent” of a domestic concern, and as an accomplice to a conspiracy to violate the statute with employees and other agents of Alstom U.S. Hoskins moved for dismissal of the charges. The DOJ opposed the dismissal; and for the conspiracy charge, cited well-established criminal law that a person may be liable for conspiracy even though that person was incapable of committing the substantive offense.3 The district court dismissed both charges in favor of Hoskins, and the government filed an interlocutory appeal. The Second Circuit reversed the dismissal on the charge that Hoskins acted as an “agent” of a domestic concern, citing questions of fact on agency status, but affirmed the district court’s dismissal of the conspiracy charge.
If conspiracy and accomplice law is well established, why did the Second Circuit affirm the district court’s dismissal against the conspiracy charge?
The court embraced “a narrowly circumscribed exception to this common-law principle” of conspiracy liability known as the Affirmative-Legislative Policy Exception. Citing a 1932 Supreme Court case,4 the court ruled that where a legislative body makes it clear that certain categories of persons are liable for criminal conduct but others, by the clear meaning and intent of the statute are excluded; the excluded persons cannot be convicted of criminal conspiracy for those underlying acts.
The court embarked on an exhaustive review the FCPA’s legislative history to conclude that Congress specifically did not intend for the FCPA to apply to a person who does not fall into one of the three statutorily defined categories.5 Reviewing the express jurisdictional provisions of the FCPA, the court ruled that Congress purposefully excluded a category of people like Hoskins, a foreign national, who acted outside of the territory of the United States, but did not have obvious or direct ties to the United States, and as a consequence, the court rejected the government’s attempt to use conspiracy and accomplice theories to prosecute Hoskins.
Why is this Case Important?
Judicial case law under the FCPA is extremely limited. To be sure, the government’s prosecution of Hoskins is not yet over. The government will continue its prosecution against Hoskins and attempt to prove that Hoskins acted as an “agent” of a domestic concern. However, we nevertheless mark the Second Circuit’s opinion because it forcefully comes down against the DOJ’s attempt to broaden the reach of the statute by using conspiracy charges to reach foreigners who cannot be prosecuted for the substantive bribery provisions of the FCPA. The interconnection between the conspiracy theory exception relied upon by the Second Circuit and the fundamental jurisdictional questions over extraterritorial application of the U.S. law will be fodder for advocates and courts alike in the future.
Final Observations
Historically, large companies, whether public or private, have not been willing to go to trial over FCPA allegations, preferring discussions with the government to earn a declination or enter into an acceptable settlement agreement. This has resulted in a lack of developed case law.
In recent years, the DOJ has reaffirmed its emphasis on prosecuting individuals, not just companies, for FCPA violations. Individuals such as Hoskins, especially those able to engage competent counsel, will be more likely to put the DOJ’s more aggressive theories to the test. The court’s exhaustive analysis of the FCPA’s legislative history will support any party who wants to contest DOJ’s expansionist theories. Time will tell whether this use of legislative history will also result in judicial pushback on the DOJ’s interpretation of who is a “foreign official,” the definition of “instrumentality,” and what proof is needed to satisfy the business nexus requirement that a bribe must be in connection with “obtaining or retaining” business.
Bass, Berry & Sims’ FCPA attorneys have advised clients on FCPA matters, including internal and government investigations, in more than 50 countries throughout Africa, Asia, Europe, and North and South America. For more information on the FCPA and how this decision may affect you or your business, please contact the authors of this alert.
1 United States of America v. Lawrence Hoskins, No. 16-1010-CR, 2018 WL 4038192, at *23 (2d Cir. Aug. 24, 2018) (emphasis in original).
2 With one separate, but concurring, opinion.
3 Salinas v. United States, 552 U.S. 52, 64 (1998).
4 Gebradi v. United States, 287 U.S. 112, 121-23 (1932).
5 The court’s extensive analysis of legislative history will be welcome to all defense counsel and to one frequent critic of the DOJ’s policy whose commentary can be found here at the FCPA Professor.