What the 2nd Circuit's Jurisdictional Ruling Means for Foreign Nationals and Entities Facing Corruption Liability
On August 24, 2018, the Second Circuit rebuffed a push by the Department of Justice (DOJ or "government") to expand the extraterritorial reach of the Foreign Corrupt Practices Act (FCPA). In rejecting a long-held government position, the Court in United States v. Hoskins held that a foreign national cannot be found liable for violating the anti-bribery provisions of the FCPA under conspiracy or accomplice liability theories if that individual could not otherwise be held directly liable under the statute. 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," the Court reasoned, effectively removing one of the government's primary methods of prosecuting foreign nationals and entities.
While the decision in Hoskins undermines one mechanism for pursuing foreign targets, it is unclear how this holding will impact investigation and charging determinations in the future. DOJ still has a host of options available to it to bring charges against foreign individuals and companies operating outside of the territory of the United States. For instance, as discussed below, in Hoskins the Court explicitly left open the agency theory of liability for both conspiracy and substantive charges. Additionally, charges under the FCPA's books and records provisions do not require the same jurisdictional hook, nor do the increasingly popular international money laundering and wire fraud charges that have arisen in the international bribery context.
The defendant in the case is Lawrence Hoskins, a UK national and former executive at the British subsidiary of Alstom S.A., a French multinational transportation company. Hoskins was charged with conspiracy to violate the FCPA and substantive FCPA charges based on agency and accessory liability theories in relation to his participation in a bribery scheme on behalf of Alstom S.A.'s U.S. subsidiary to win a multi-million-dollar contract to build power stations for Indonesia's state-owned power company.
The government did not allege that Hoskins was an officer or employee of the U.S. subsidiary, nor that he had committed any act in furtherance of the bribery scheme while physically present in the United States. The government's theory of liability for the foreign national was that Hoskins was involved in "approving the selection of, and authorizing payments to," the consultants who would orchestrate the bribe payments, knowing that they would use a portion of the payments to pay Indonesian officials in exchange for assistance in obtaining contracts. DOJ further alleged that while Hoskins did not travel to the United States, he communicated with co-conspirators who were "in the District of Connecticut and elsewhere" regarding the scheme.
The Second Circuit's opinion began by recognizing the general rule that an individual can be charged for conspiracy and/or aiding and abetting a crime that he or she is incapable of committing as a principal. The Court looked to Supreme Court precedent holding that a person who is not bankrupt himself can still be guilty of conspiring with a bankrupt person to hide assets of the bankrupt estate. Similarly, a getaway driver can be charged with bank robbery as an accessory, even though he did not commit the overt acts required under the statute.
The Court decided, however, that the general rule was trumped by the affirmative-legislative-policy exception and the principle against extraterritorial application of criminal laws. The affirmative-legislative-policy exception prevents application of accomplice liability to individuals explicitly excluded from the statute's direct liability. Based on both the text of the statute and legislative history of the FCPA, in addition to the principle against extraterritorial application of criminal statutes, the Court held that Congress intentionally excluded foreign nationals without a connection to the United States from liability under the FCPA. Therefore, Hoskins could not be liable for conspiracy to violate the FCPA, nor for substantive violations of the law without an allegation that he was acting as an agent, employee, officer, director, or shareholder of an issuer or domestic concern, or that he committed an act in furtherance of the bribery scheme while in the territory of the United States.
However, the Second Circuit opinion did allow the government's conspiracy charges against Hoskins stemming from his alleged role as an agent of Alstom's U.S. subsidiary to go forward. While the Court noted that Hoskins, who never set foot in the U.S. during the alleged bribery scheme, could not be guilty of violating the "while in the territory of the United States" provision directly, it found that the government should be permitted to argue that Hoskins conspired to violate the provision if he was acting as an agent of a domestic concern.
What It Means for Foreign Individuals and Entities
In its appellate brief DOJ urged the Second Circuit to adopt its expansive accessory and conspiracy liability FCPA theory on the grounds that not to do so would permit nefarious non-U.S. executives to orchestrate wide-ranging bribery schemes through their U.S. subsidiaries, all while remaining safely outside the reach of the law. "Otherwise," the government argued, "a foreign national CEO of a foreign company… could originate, plan, and cause the carrying out of a massive bribery scheme through [a] U.S. subsidiary… the CEO could send dozens of emails to the United States in furtherance of the corrupt scheme… the CEO could wire the bribe money… with an accompanying instruction to 'pay this money to the official or I will fire you.'… [b]ut the CEO would escape liability while all of his employees and agents could be prosecuted."
Contrary to the apocalyptic scenario painted by the government in its brief, foreign companies and their officers and executives will not be able to freely orchestrate wide-ranging bribery schemes through their U.S. subsidiaries. The Second Circuit's opinion explicitly allows for prosecution of foreign individuals and legal entities on agency liability theories. Assuming the factual circumstances do not establish an agency relationship, or that the executive acted within the United States, the government will still have the increasingly popular international money laundering charges it could pursue the foreign briber with, as well as potential wire fraud charges, which carry steep criminal penalties sufficient to deter such criminal conduct.
That being said, Hoskins may impact government investigation and charging decisions in the future where foreign targets do not act within the territory of the United States or as an agent of a U.S. issuer or domestic concern. For foreign individuals and companies with an aversion to DOJ scrutiny, the prudent course will still be to avoid liability through thorough due diligence of business partners and a robust compliance program.