US Court Limits FCPA Liability for Non-US Persons

The recent decision of the US Court of Appeals for the Second Circuit in United States v. Hoskins limits the ability of the US Department of Justice (“DOJ”) to enforce the Foreign Corrupt Practices Act (“FCPA”) against certain foreign nationals. The Court held that foreign persons who are not directly subject to the FCPA – because they are not US persons, do not work for either a US company or a non-US company that has US-registered securities, and did not engage in any prohibited conduct in the US – cannot be found guilty of an FCPA violation based on co-conspirator or accomplice theories of liability.

This post highlights some key aspects and implications of the decision.

Firstas a practical matter, companies would be wise not to modify their anti-bribery compliance programs based on this decision. DOJ could seek re-hearing or appeal the decision, which is binding, in any event, only within the Second Circuit. DOJ could bring future cases based on similar facts in other US jurisdictions, and potentially persuade one of the other 11 intermediate appellate courts to disagree with the Second Circuit’s decision in Hoskins. Moreover, Hoskins has no impact on DOJ’s ability to charge bribery-related conduct under other criminal statutes. In Hoskins itself, for example, the defendant continues to face money laundering charges.

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Second, Hoskins leaves unanswered key questions in this regard, including what source of law the lower court should look to in construing agency principles under the FCPA and whether a defendant can be liable as an agent only where he acts at the direction of a US person or entity, but not where he directs the actions of a US company.

although the Second Circuit rejected co-conspirator and accomplice liability for foreign nationals who are not directly subject to the FCPA, the Court permitted charges to go forward that the defendant acted as an “agent” of US persons (including both individuals and entities) who are directly subject to the FCPA. The statute does not define “agent,” however, and whether the defendant acted as an agent of a US company will undoubtedly be the subject of further litigation.

Third, Hoskins is yet another example of US courts applying the US Supreme Court’s 2009 decision in Morrison v. National Australia Bank to limit the extraterritorial application of US criminal laws. Since Morrison, the Supreme Court has applied the presumption in a number of cases, including RJR Nabisco, Inc. v. European Community, where it found that the provision of the RICO statute creating a private cause of action did not have extraterritorial reach. Having initially applied the presumption against extraterritoriality, as interpreted in Morrison, to limit the reach of certain substantive criminal laws, lower courts subsequently relied on it to invalidate search warrants issued to US providers of email services for electronic communications stored abroad (decisions subsequently rendered moot by Congress’s enactment of the CLOUD Act). In Hoskins, the Second Circuit again relied on the presumption, this time to conclude that there was no clearly expressed congressional intent to allow conspiracy and accomplice liability for those not directly subject to the FCPA.

Background on the Hoskins Case

The defendant, Lawrence Hoskins, is a UK national who was employed by a UK subsidiary of French power company Alstom S.A. He was based in France on assignment at another Alstom subsidiary, working on securing contracts for Alstom in Asia. DOJ alleged that Mr. Hoskins and others schemed with Alstom’s US subsidiary to secure contracts in Indonesia through bribery. There is no allegation that Mr. Hoskins traveled to the US or worked directly for Alstom’s US subsidiary.

DOJ charged Mr. Hoskins with, among other things, conspiring with Alstom US, its employees, and others to violate the FCPA and aiding and abetting their violations of the statute. In its ruling, the Second Circuit rejected these conspiracy and accomplice liability theories. The Court, however, left open the possibility that Mr. Hoskins violated the FCPA as an “agent” of Alstom US or its employees. Mr. Hoskins also continues to face related money-laundering charges.

The Reach of US Anti-Bribery Enforcement Remains Broad

Hoskins 

represents a limited exception to the general rule that a person can be found guilty of conspiracy or complicity even if the person does not fall within the class of people who can commit the substantive offense. While announcing this exception, the Second Circuit confirmed that non-US persons (including both companies and individuals) may be subject to the FCPA in any of the following circumstances:

• when a non-US company issues securities on a US exchange, both the company and any of its officers, directors, employees, agents, or stock-holders acting on its behalf may be subject to the FCPA;
• when a person (company or individual) acts as an agent, employee, officer, or director of a US company, or they are a stock-holder of a US company acting on its behalf;
• finally, other non-US persons (including both companies and individuals) not falling within the above who take any action to violate the FCPA while present in the territory of the US may also be subject to the statute.

While these bases for FCPA liability remain intact, Hoskins will cause US prosecutors to reassess how to proceed in investigations involving foreign companies and nationals that are similarly situated to Mr. Hoskins. DOJ has apparently used the theory of liability rejected by the Court in several recent FCPA enforcement actions against non-US parent companies as co-conspirators of their US subsidiaries (for example, the case of Singapore-based Keppel Offshore & Marine Ltd.).

Some Considerations Looking Forward

Companies investigating conduct that may implicate the FCPA would be wise to continue the best practices they have developed over the years. When it comes to the conduct of non-US companies and individuals, companies should pay particular attention to and look out for evidence regarding:

• whether any non-US person acted as an agent of a US company or individual;
• whether any non-US person engaged in conduct in violation of the FCPA while present in the US; and
• whether any non-US person engaged in conduct in violation of US money-laundering laws.

 Companies should also follow further developments in the Hoskins case, in particular, how DOJ and the courts approach the agency question. More broadly, it remains to be seen whether, and to what extent, DOJ may change its approach to FCPA enforcement based on this decision.

(Co-authored with Brent Wible, Counsel, Washington, DC).