Overview
On August 12, the US Court of Appeals for the Second Circuit affirmed the district court’s acquittal of defendant Lawrence Hoskins for an FCPA charge that was based on his alleged status as an "agent" of a domestic concern.1 This is the second time the Second Circuit has concluded that Hoskins, a non-US person whose acts in support of a foreign bribery scheme did not occur in the United States, was outside the scope of the FCPA's extraterritorial jurisdiction. In Hoskins I, the Second Circuit rejected the government's attempt to prosecute under a conspiratorial liability theory, ruling that a person cannot be found guilty as an accomplice or a co-conspirator for an FCPA violation where that person was incapable of committing a violation of the FCPA as a principal.2 According to the Second Circuit, as a non-US person, Hoskins was only capable of violating the statute outside the United States if he was an agent, employee, officer, director, or shareholder of a US issuer or domestic concern.
In Hoskins II, unlike in Hoskins I, the Second Circuit did not reject the government's legal theory as such. At trial, the prosecution had proceeded on the theory that Hoskins was liable for his role in the underlying bribery scheme as an "agent" of a US concern. The Second Circuit, over a dissenting opinion, affirmed the district court's decision that the evidence presented at trial was insufficient for a reasonable jury to find that Hoskins was an "agent" within the meaning of the statute. Based on the reasoning of the Second Circuit and the way it evaluated the evidence as against common-law standards for principal-agent relationships, the implications of Hoskins II are significant. Indeed, when considered in combination with the impact of Hoskins I, there is real potential for an entire class of non-US actors who may be intimately involved in helping US companies with foreign bribery schemes to escape liability under the FCPA. In our view, the potential policy implications of this result, as well as the ongoing divergence of district court views about conspiratorial liability, means this issue is far from settled. Further legal developments could take the form of the Supreme Court agreeing to review the scope of FCPA liability, or they could take the form of congressional action to amend the FCPA.
The Second Circuit’s Recent Decision in Hoskins II
Lawrence Hoskins was a British citizen working as senior vice president for the Asia region at the French company Alstom SA and its British subsidiary. Between 2002 and 2004, Hoskins participated in the retention of two "consultants" assigned to bribe officials of the Indonesian state electricity company, Perusahaan Listrik Negara ("foreign officials" under the FCPA) to secure a $118 million contract relating to the Tarahan coal-fired steam power plant project for Alstom.
Hoskins was not a US person, did not work for a US company, and was not geographically located in the United States during the scheme.3 The government, however, alleged that Hoskins—although employed by the French company and its British subsidiary—was liable as a co-conspirator and accomplice to Alstom's US subsidiary's FCPA violation. It therefore charged him with (among other things) violating the FCPA.
In 2018, the Second Circuit rejected the proposition that Hoskins could be subject to FCPA conspiracy or accomplice liability based solely on his alleged co-conspirator’s US status. The court held that a person could not be guilty as an accomplice or a co-conspirator for an FCPA violation that he or she is incapable of committing as a principal.4 Because Hoskins was not a US person or otherwise capable of committing an FCPA violation under the facts as they were then alleged, he could not be subject to FCPA conspiracy or accomplice liability. The court left open, however, the possibility that Hoskins could be held liable as an "agent," which is a category of defendant contemplated by the statute’s language.
The government proceeded at trial on a theory that Hoskins’ conduct rendered him liable as "an agent" of "a domestic concern," i.e., an agent of the US subsidiary under 15 USC. § 78dd-2. The jury convicted Hoskins on 11 counts involving FCPA violations and consequent money laundering, but the district court granted a motion for acquittal, holding that Hoskins was not an agent within the meaning of the FCPA.5 The government again appealed.
This time, the Second Circuit affirmed the acquittal. The court explained that the "crux" of the appeal was "whether there was an agency relationship between Hoskins and API," Alstom's US subsidiary.6 Noting that the parties agreed that the common-law meaning of agency applied, the court explained that "the three elements necessary to an agency relationship are (1) a manifestation by the principal that the agent will act for him; (2) acceptance by the agent of the undertaking; and (3) an understanding between the parties that the principal will be in control of the undertaking."7 Here, Hoskins was employed by a non-US subsidiary, but his actions occurred "at the behest" of the US subsidiary and were "subject to the decision-making of" US subsidiary executives. The court found, however, that there was no evidence that those executives "actually controlled Hoskins's actions."8 The US subsidiary did not hire Hoskins, lacked the ability to fire Hoskins, and did not determine Hoskins’ compensation. Because a chief justification for a principal’s accountability for an agent’s acts is the principal’s ability to select, control, and terminate the agent, this lack of control was "fundamental" to the conclusion that Hoskins was not an agent of the US subsidiary.9 Here, Hoskins lacked authority to act on the US subsidiary's behalf or otherwise bind the subsidiary.10 As the court noted, "there is no indication that Hoskins had any authority to negotiate binding terms nor that he served as anything more than a messenger for the US subsidiary.”11 Due to the US subsidiary's lack of control over Hoskins, the court concluded that there was not sufficient evidence from which a jury could find the agency relationship required to establish criminal liability under § 78dd-2.
FCPA Extraterritorial Jurisdiction Over Non-US Persons: Diverging Court Decisions
Between Hoskins I and Hoskins II, there has emerged a divergence in the district courts to have considered the extraterritorial reach of the FCPA over non-US persons acting outside of the United States.
The first of these, United States v. Rafoi-Bleuler,12concerned a Swiss citizen and resident, Daisy Rafoi-Bleuler, who allegedly assisted a group of US-based businessmen and firms in bribing Venezuelan officials in return for favorable treatment from PDVSA, Venezuela's state-owned oil and natural gas company.13 Rafoi-Bleuler was not alleged to have taken any action while physically present in the United States. Instead, the government argued that, contra Hoskins I, co-conspirator liability under the FCPA extends to individuals outside of the United States who are not covered by the statute's direct proscriptions, and also that an individual outside of the United States who acts as an agent of a domestic concern is subject to FCPA liability.14
The US District Court for the Southern District of Texas largely rejected both of these arguments. With respect to co-conspirator liability, the court expressly relied on Hoskins I in holding that "the FCPA intends to criminalize the conduct of a foreign person only to the extent such conduct occurs while the person is present in or where she has previously established ties to United States."15 With respect to agency liability, the court held that the government must establish an "agency relationship . . . in the United States," based on “the defendant’s alleged acts," and dismissed the indictment because it "did not point to any act by the defendant committed" in the United States.16 The court also held that the term "agent" under the FCPA was unconstitutionally vague as applied because "no court has interpreted the statute or rendered a judicial decision that fairly discloses the manner in which the term may be applied to establish jurisdiction."17 Rafoi-Bleuler thus went further than the recent Hoskins II decision, rejecting even the possibility that a non-US person acting abroad could be held liable under the FCPA as an agent or co-conspirator of a domestic concern.
Another post-Hoskins I case, United States v. Firtash,18 reached a contrary conclusion. Firtash involved alleged bribes paid at the direction of Ukrainian oligarch Dmytry Firtash. As alleged, Firtash and several business associates conspired to bribe Indian officials in order to obtain licenses that would allow them to mine titanium and export it to the United States. To effectuate this conspiracy, Firtash met with the officials to discuss the project, authorized the payment of bribes to them, and directed subordinates to execute those payments.19
Like Rafoi-Bleuler, Firtash was not alleged to have ever been physically present in the United States or to be a US person.20 He also was not alleged to have been working as an agent of a domestic concern, and the court did not take up the agency theory that the Second Circuit focused on in Hoskins II.21
However, the Firtash court did take up the co-conspirator liability theory rejected by Hoskins I, arriving at the opposite conclusion: that the co-conspirator of a domestic concern need not independently meet the FCPA's jurisdictional requirements to be subjected to liability under the statute.22 One of Firtash's associates, Gajendra Lal, was a permanent resident of the United States and was therefore a domestic concern.23 The court held that Firtash's alleged conspiracy with a domestic concern was sufficient to establish criminal liability under the FCPA and accordingly denied Firtash’s motion to dismiss the case.24
Policy Implications and Observations from Hoskins II
Judge Raymond Lohier, concurring in part but dissenting in part in a separate opinion in Hoskins II, disagreed with the majority’s reasoning on the issue of Hoskins' status as an "agent" within the meaning of the FCPA, but also raised several policy concerns about the combined effect and implications of the Second Circuit's Hoskins I and Hoskins II decisions.
The evidentiary question indeed was a close one. Even Judge Lohier noted that "to be sure, the evidence of API's authority to cut ties with Hoskins—the central evidence of the agency relationship that the majority finds lacking—was slim," although he quickly added, "but slim is not the same thing as insufficient."25 For Judge Lohier, meeting the common-law standard required only that the government show "that API could terminate his Hoskins' involvement—and thus revoke his authority—at least in part."26 For the majority, which applied the common-law standard in a more formalistic and arguably more rigid manner, this did not suffice.
We believe the policy implications of Hoskins II to be of greatest significance. With this result, Hoskins and others similarly situated cannot be prosecuted under the FCPA despite allegedly playing a deliberate and important role in helping a US company execute a scheme to bribe foreign officials. In our experience, many multinational companies are organized in a similar manner as Alstom was in this case, with non-US employees located abroad in a shared services or other support center where they provide support to the corporation's operations around the world, including to US business units and entities. And, again as in the Alstom case, in a multinational organization these types of functions may be located within a non-US business entity even though they provide support to the US part of the multinational’s business.
At a minimum, this means that under the Second Circuit's decisional law, there is a gap in the FCPA when it comes to individuals such as Hoskins. But, even beyond that, and as the dissent noted, there is the distinct possibility of arguably perverse incentives—i.e., that companies, as Judge Lohier noted, "will be motivated to organize themselves to avoid exercising control over the employees of foreign affiliated companies who engage in bribery overseas."27 Indeed, while Judge Lohier focused his concern on "US companies," the issue is broader, as reflected in the Hoskins case itself (with Alstom headquartered in France), and includes multinational companies more broadly. We note, furthermore, that in this important respect the circumstances presented in Hoskins differed from those in Rafoi-Bleuler. The latter involved a third party who allegedly provided certain types of support for the bribery scheme. The former involved not a third party but, rather, an employee, albeit of an affiliate within the corporate family rather than of the US entity directing the bribery scheme.
The decision is also likely to raise further questions from the Organization for Economic Cooperation and Development (OECD). The US is not only a party to the OECD's Anti-Bribery Convention but historically has been a leader in promoting the Convention and the OECD’s work around the world against corruption. As noted by the dissent, the OECD previously expressed concern about the Second Circuit's Hoskins I decision. Specifically, and unsurprisingly given the OECD's perspective, the OECD Working Group on Bribery has emphasized that "the lead examiners welcome the DOJ's reliance on several theories of liability to enforce US law against foreign bribery" and, citing Hoskins I, stated that "to the extent that recent US case law developments create a divergence between how US courts apply conspiracy law to those who conspire to bribe domestic and foreign officials, the lead examiners consider that this would violate the Convention."28
US courts historically have been leery of interpreting the FCPA in ways that would bring the United States out of compliance with the OECD Convention.29Although that did not seem to trouble the Hoskins II majority, there is no doubt this decision will bring the US under further scrutiny.
The government could seek reconsideration of the Hoskins II decision, and/or file a petition for a writ of certiorari with the Supreme Court. Moreover, the government has already appealed the decision of the Southern District of Texas in Rafoi-Bleuler, meaning the Fifth Circuit will have an opportunity to weigh in on both the conspiracy and agency questions. It is possible that the Seventh Circuit will be presented with the Firtash case as well, although for now, that case is dormant and has been moved to the Northern District of Illinois' "fugitive docket."
Given the divergence in approaches between courts in different circuits, the extent of the FCPA's extraterritorial reach to foreign nationals may end up before the Supreme Court. It is also possible that Congress could take up the issue of the FCPA's scope as it pertains to non-US persons and consider legislative changes. We will be closely tracking these developments.
Endnotes
1 United States v. Hoskins, No. 20-842, _ F.4th _, 2022 WL 3330357 (2d Cir. Aug. 12, 2022) (Hoskins II).
2902 F.3d 69, 76, 95 (2d Cir. 2018) (affirming in part a pretrial dismissal of portions of the indictment).
3 Hoskins did allegedly email and call co-conspirators from abroad while they were in the United States, but these acts alone were deemed insufficient to establish jurisdiction. Hoskins I, 902 F.3d at 76.
4 Hoskins I, 902 F.3d at 76, 95.
5 United States v. Hoskins, 12-cr-238, 2020 WL 914302, at *7, *13 (D. Conn. Feb. 26, 2020).
6 Hoskins II at *5.
7 Id. (quoting Johnson v. Priceline.com, Inc., 711 F.3d 271, 277 (2d Cir. 2013)).
8 Id. at *6.
9 Id. (citing Restatement (Third) of Agency § 1.01 cmt. c).
10 Id. ("A hallmark of a principal-agent relationship is that an agent can bind principals to certain legal commitments.").
11Id.
12 No. 4:17-cr-00514-7 (S.D. Tex. Nov. 12, 2021), ECF No. 255.
13Id. at 3-4.
14 Id. at 8.
15 Id. at 18.
16 Id. at 15-16 (emphasis added); see also id. at 21 (stating that the FCPA requires "an established agency relationship that occurred in the United States").
17 Id. at 22.
18392 F. Supp. 3d 872 (N.D. Ill. 2019).
19Id. at 877.
20 Id. at 877, 879.
21Id. at 889 ("The Indictment does not charge that either Firtash or Knopp is the agent of a domestic concern or a qualified foreign national.").
22 See id.
23 Id. at 879-80.
24 Id. at 896.
25 Hoskins II at *15 (Lohier, J., concurring in part and dissenting in part).
26Id. at *14.
27Id. at *16.
28 See Implementing the OECD Antibribery Convention, Phase 4 Report, United States, at p. 37 ¶ 115, p. 38 ¶ 119 & cmt., p. 113 (Oct. 16, 2020).
29 E.g., United States v. Kay, 359 F.3d 738, 754-55 & n.68 (5th Cir. 2004).
