Overview
On February 8, 2023, the US Court of Appeals for the Fifth Circuit reversed a district court’s decision dismissing the Foreign Corrupt Practices Act (FCPA) and money laundering charges against two non-US defendants for lack of subject-matter jurisdiction.1This is a win for the government after several setbacks in FCPA prosecutions of non-US persons acting outside of the United States. The Fifth Circuit applied a lenient standard for evaluating the sufficiency of the charges, and took the view that the question of whether a statute reaches extraterritorial acts is a merits issue to be litigated at trial rather than a question of subject-matter jurisdiction that can prevent a court from even hearing the matter. At the same time, the Fifth Circuit declined to address an important question presented to the court, i.e., whether these cases can be brought against non-US persons on the basis of a secondary liability theory such as conspiracy or accomplice liability.
I. Backdrop: The Hoskins Litigation
The implications of the Fifth Circuit’s decision are best understood against the backdrop of a long-running litigation in the Second Circuit—United States v. Hoskins—that unfolded in recent years and has involved some of the same questions of law. In Hoskins, which eventually involved not one but two appellate court decisions, the government ultimately failed to prevail on its FCPA liability theories against a non-US defendant.
Hoskins was a British citizen who worked at Alstom SA, a French company with a subsidiary in the United States. Hoskins was charged with FCPA, money laundering and conspiracy offenses for his alleged role in a bribery scheme involving the US subsidiary’s operations in Indonesia. In the first of two appellate decisions in the matter, the Second Circuit rejected the government’s theory that Hoskins was secondarily liable as a co-conspirator and accomplice to the US subsidiary’s FCPA violation. Instead, the Second Circuit ruled that only a person capable of violating the FCPA as a principal can be prosecuted under a conspiracy or complicity theory.2 Put another way, under the Second Circuit’s reasoning, secondary liability theories cannot be used to expand the jurisdictional reach of the FCPA beyond the categories of actors expressly enumerated in the statute. One of those categories is “any agent of a domestic concern.”3 The Second Circuit remanded the case for trial to determine whether Hoskins was liable as an agent of a “domestic concern” (in this case, Alstom’s US subsidiary). On remand, a jury convicted Hoskins on that theory. In its second decision in Hoskins, however, the Second Circuit affirmed the District Court in rejecting the jury’s verdict on the grounds that the evidence presented by the prosecution was insufficient as a matter of law to find that Hoskins was an “agent” within the meaning of the statute.4
II. The District Court's Decision in United States v. Rafoi and United States v. Murta
In the cases on review before the Fifth Circuit, the US District Court for the Southern District of Texas adopted the Second Circuit’s reasoning in the Hoskins decisions to dismiss FCPA-related charges against non-US defendants Daisy Rafoi-Bleuler (Rafoi) and Paulo Jorge da Cosa Casqueiro Murta (Murta).5 The Rafoi and Murta cases involved allegations that US-based individuals and firms had bribed Venezuelan officials to receive favorable treatment from Venezuela’s state-owned oil and natural gas company, PDVSA, in violation of the FCPA. Neither Rafoi (a Swiss wealth management advisor) nor Murta (a Portuguese-Swiss employee of a different wealth management firm) were US persons, but they were charged with conspiring with the aforementioned US individuals and firms to commit money laundering and to violate the FCPA, and with money laundering. There was no allegation that Rafoi took any action while physically present in the United States. As to Murta, the DOJ alleged only that he traveled to the United States to meet with co-conspirators in support of the scheme.
The District Court dismissed the charges against both defendants for lack of subject-matter jurisdiction and unconstitutional vagueness. Applying Hoskins, the court found that the FCPA and derivative money laundering liability—including secondary liability under a conspiracy or accomplice theory—for non-US persons did not extend beyond those categories of actors expressly enumerated in the statute. Either the non-US person must have committed part of their crime while in the United States, or the non-US person must be an officer, director, employee, or agent of a domestic concern.6 The court then rejected the government’s argument that Rafoi and Murta, both non-US persons, had acted as “agents” of one or more domestic concerns, holding that the government had failed to present sufficient “direct evidence” of an agency relationship.7
Finally, although Murta had (unlike Rafoi) allegedly traveled to the United States, the District Court held that the indictment was insufficient as to both defendants and failed to establish a sufficient nexus between the alleged criminal conduct and the United States.8 Similarly, with respect to the money laundering counts, the court held that it lacked subject-matter jurisdiction because the defendants’ alleged misconduct on which the money laundering counts were predicated did not “occur … in the United States.”9 In the alternative to its subject-matter jurisdiction holdings, the court dismissed the indictments based on its conclusion that the term “agent” as used in the FCPA was unconstitutionally vague as applied to Rafoi and Murta.10
III. The Fifth Circuit's Decision
A. Subject-Matter Jurisdiction
The Fifth Circuit held that the District Court erred by dismissing the case on jurisdictional grounds. According to the Fifth Circuit, “whether a statute reaches extraterritorial acts is not a challenge to the district court’s subject-matter jurisdiction. … Rather, ‘extraterritoriality “is a question on the merits not a question of a tribunal’s power to hear the case.”’”11In lieu of requiring a justification for extraterritorial application of US law, the court held that subject-matter jurisdiction requires only that the indictment charge a crime against US law and need not allege any additional jurisdictional facts.12
B. Sufficiency of the Indictment's FCPA Allegations
The Fifth Circuit then considered the District Court’s dismissal of the FCPA conspiracy charges on the basis that the indictment failed to establish the statute’s jurisdictional elements.13
1. Direct Liability as Enumerated Actors
With respect to direct liability, the appellate court held that the indictment sufficiently alleged that Rafoi and Murta qualified as enumerated actors by “specifically alleging that both Rafoi and Murta acted as ‘agents of a ‘domestic concern’ as that term is used in the FCPA … .’”14 The court reasoned that “this express characterization” met the minimal requirements that Rafoi and Murta “be put on notice of the charge and agency theory asserted against them such that they may prepare a defense.” 15 Apart from meeting this standard, “the government need not describe all evidentiary details establishing the facts of the alleged agency relationship,”16 and that to the extent a defendant needs to know more details, he or she is free to file a motion for a bill of particulars.17
The court also held that the indictment properly alleged Murta’s potential direct liability based on his travel to Miami, Florida.18 The court rejected Murta’s argument that the charge violated his due process rights, reasoning that: (1) a jurisdictional nexus existed because Murta was charged with intent or knowledge that money would be unlawfully transferred internationally from or through the United States, which is sufficient to harm US interests; and (2) Murta had fair warning that his conduct might be criminal, at least outside the United States, because “international-bribery schemes and money laundering are condemned universally by law-abiding nations.”19
2. Secondary Liability as Co-Conspirators with Enumerated Actors
With respect to secondary liability as co-conspirators, the Fifth Circuit declined to issue a ruling, ostensibly on the grounds that the District Court had not “ruled upon” this issue.20 Why the appellate court chose to dodge this issue is unclear, given that the District Court, citing Hoskins, unambiguously addressed the government’s theory of conspiratorial liability.21
C. Whether "Agent" Is Unconstitutionally Vague
The court also rejected the defendants’ contention that the term “agent” was unconstitutionally vague.22 The court reasoned that although the term “agent” is not defined in the FCPA, it is governed by its common-law meaning.23 This “does not draw a line so vague that Defendants were not reasonably aware of their potential for engaging in illegal activity under the FCPA.”24 The court further held that a “person of common intelligence would have understood” that Rafoi’s and Murta’s alleged establishment of accounts “to obfuscate the source of monies knowingly derived from an illegal bribery scheme ‘were treading close to a reasonably-defined line of illegality’ under an agency theory of liability.”25
D. Sufficiency of the Indictment’s Money Laundering Allegations
Applying the Money Laundering Control Act’s extraterritoriality provision—requiring, in the case of a non-US citizen, that “the conduct occurred in part in the United States” and involved transactions exceeding $10,000—the court held that the indictment’s allegations were sufficient.26 The court first rejected the District Court’s conclusion that conduct could only occur in part in the United States if the defendant “commits some portion of the offense while in the United States.”27 The court then recited the indictment’s allegation that Rafoi and Murta committed the charged crimes while “in the Southern District of Texas and elsewhere,” holding that boilerplate language to be sufficient to allege that the transaction and the defendants’ activity took place, at least in part, in the United States. The court implied, however, that the government will need to prove at trial that the “Defendants did, in fact, engage in conduct that took place in part in the United States.”28 Particularly with respect to Rafoi, the government’s ability to carry this burden remains unclear.
Takeaways
Rafoi presented the first chance for a federal appeals court to address the Second Circuit’s Hoskins decision that the FCPA liability does not reach non-US persons unless the facts establish jurisdiction based on one of the statutory relationships or presence. Surprisingly, and in our view wrongly, the Fifth Circuit chose to duck the issue entirely, despite the District Court having squarely ruled on this issue, and the government having challenged it on appeal. The result is that the waters of co-conspirator liability remain muddy for practitioners (read our client alert here). On remand, there appears to be no reason for the District Court to diverge from its position that Hoskins was correctly decided and limit the government’s charging theory accordingly.
Rafoi otherwise gave the government a clear win, something that has eluded it in most recent litigation addressing the extraterritorial reach of the FCPA over non-US persons. But by adopting a lenient standard for sufficiency of charges and taking the view that extraterritoriality is a merits issue, the decision forces non-US persons in the Fifth Circuit to wait for trial for these scope issues to be determined. Some amici had suggested that district courts should have latitude to explore the viability of a criminal case at an early stage, before a non-resident is forced to come to the US to defend him or herself (the fugitive disentitlement doctrine notwithstanding), but the court did not take up that suggestion.
Rafoi did break new ground in one way. Specifically, while the Second Circuit had declined to rule on the correct standard for determining agency under the FCPA,29 the Fifth Circuit ruled that the common-law definition applies.30 For a discussion of the elements of common-law agency and how they may apply in the FCPA context, see our 2022 client alert.
Endnotes
1 United States v. Rafoi, ___ F.4th ____, 2023 WL 1811921 (5th Cir. Feb. 8, 2023).
2 United States v. Hoskins, 902 F.3d 69, 76, 95 (2d Cir. 2018).
3 Id. at 72.
4 United States v. Hoskins, No. 3:12cr238 (JBA), 2020 WL 914302, at *7, *13 (D. Conn. Feb. 26, 2020), aff’d, 44 F.4th 140 (2d Cir. 2022).
5 United States v. Rafoi-Bleuler, No. 4:17-cr-00514-7, 2021 WL 9884704 (S.D. Tex. Nov. 12, 2021); United States v. Murta, No. 4:17-cr-00514-8, 2022 WL 4002321 (S.D. Tex. July 11, 2022).
6 Rafoi-Bleuler, 2021 WL 9884704, at *6 & n.14; Murta, 2022 WL 4002321, at *3 & n.10.
7 Rafoi-Bleuler, 2021 WL 9884704, at *6; Murta, 2022 WL 4002321, at *3 & n.10.
8 Murta, 2022 WL 4002321, at *4.
9 Rafoi-Bleuler, 2021 WL 9884704, at *8; Murta, 2022 WL 4002321, at *4.
10 See Rafoi-Bleuler, 2021 WL 9884704, at *9; Murta, 2022 WL 4002321, at *3.
11 Rafoi, 2023 WL 1811921, at *2 (quoting United States v. Vasquez, 899 F.3d 363, 371 (5th Cir. 2018)).
12 Id.
13 Id. at *2.
14 Id. at *3 (quoting 15 USC. § 78dd-2(h)(1)).
15 Id.
16 Id.
17 See id. (quoting United States v. Gordon, 780 F.2d 1165, 1172 (5th Cir. 1986)).
18 Id. at *4.
19 Id.
20 Id.
21 Rafoi-Bleuler, 2021 WL 9884704, at *6 & n.14.
22 Rafoi, 2023 WL 1811921, at *5.
23 Id. at 6.
24 Id. (quoting United States v. Kay, 513 F.3d 432, 441 (5th Cir. 2007)).
25 Id. (quoting Kay, 513 F.3d at 442).
26 Id. (quoting 18 USC. § 1956(f)).
27 Id.
28 Id.
29 United States v. Hoskins, 44 F.4th 140, 150 n.2 (2d Cir. 2022) (“Although amici have thoroughly briefed the issue, Hoskins's brief merely sets out a footnote stating that both parties agreed to proceed with a common-law definition of agency. We thus decline the invitation of amici to delve further into the issue.”).
30 Rafoi, 2023 WL 1811921, at *6 & n.10.
