International Reach of the FCPA Limited by the Second Circuit
September 5, 2018
On August 24, 2018, the United States Court of Appeals for the Second Circuit limited the extraterritorial reach of the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”), with its decision in United States v. Hoskins. In Hoskins, the Second Circuit held that conspiracy and aiding and abetting theories of liability under the FCPA could not extend to non-resident foreign nationals, acting outside American territory, who lacked an agency relationship with a U.S. person or entity, and who were not officers, directors, employees, or stockholders acting on behalf of an American company.
Limitations on FCPA
In Hoskins, the government alleged that the defendant, Lawrence Hoskins, had conspired to violate and aided and abetted violations of the FCPA. The defendant was employed by a U.K. subsidiary of Alstom S.A. and was assigned to work at a French subsidiary during the time period at issue. The government charged that a separate Alstom subsidiary in the U.S. retained two consultants to bribe Indonesian officials in an effort to secure a $118 million power contract. While Hoskins neither worked for Alstom’s U.S. subsidiary in a direct capacity nor visited the U.S. while the bribery scheme occurred, the government alleged that he was responsible for approving the selection of and authorization of the consultant payments, with knowledge that a portion of them were intended for Indonesian officials in exchange for their influence and assistance in awarding the contract.
The government alleged two theories of liability. First, the defendant was liable because he was an agent of Alstom U.S., which was a U.S. subsidiary. Second, separate from the defendant’s agency relationship with an American company, the defendant conspired with Alstom U.S. and its employees, as well as foreign persons, to violate the FCPA and also aided and abetted their violations. It is this latter theory which was the focus of the Court: whether Hoskins, a foreign national who neither visited the U.S. nor worked for an American company during the alleged bribery scheme, could be held liable under a conspiracy or aiding and abetting theory for violating the FCPA’s provisions that target American persons, companies, and their agents, officers, directors, employees, and shareholders, and persons physically present in the U.S.
The Court concluded that the FCPA’s statutory text did not contain any provisions assigning liability to persons who were in the defendant’s position – namely, non-resident foreign nationals, acting outside American territory, who lacked an agency relationship with a U.S. person or entity, and who were not officers, directors, employees, or stockholders of an American company. In support of its decision, the Court referenced the legislative history of the FCPA, which demonstrated Congress’s affirmative decision to leave foreign nationals outside the jurisdiction of the FCPA where they do not act as agents, employees, directors, officers, shareholders of an American issuer or domestic concern, and where they operate outside U.S. territory. Accordingly, the Court held that the doctrines of conspiracy and aiding and abetting were not enough to confer liability onto the defendant in this particular case, since the government failed to establish a “clearly expressed congressional intent” to allow conspiracy and aiding and abetting liability to broaden the extraterritorial reach of the FCPA.1
In short, despite the new limitations on the FCPA’s extraterritorial reach in cases brought in the Second Circuit, which covers New York, Connecticut, and Vermont, there is still FCPA risk for foreign-based persons engaging in business outside the U.S., provided there is adequate U.S. nexus.2 Companies and their employees, agents, directors, officers, and shareholders acting on their behalf should take precautions when engaging in business with foreign governmental entities (e.g., sovereign wealth funds), including those in high-risk countries. Strong internal controls, policies, and procedures are essential to any FCPA compliance program.
1 Additionally, while the Second Circuit affirmed the district court’s dismissal of count one of the indictment, as discussed above, the Second Circuit ultimately concluded that the government could bring FCPA charges against the defendant based on the theory that the defendant had acted as an agent of a domestic concern that was liable as a principal for the substantive FCPA counts charged in the indictment. This theory of liability, the Court explained, did not involve extraterritorial application of the FCPA and could therefore proceed.
2 The SEC also recently resolved FCPA charges in In the Matter of Legg Mason, Inc., Administrative Proceeding File No. 3-18684 (Aug. 27, 2018), which involved a former Legg Mason asset management subsidiary who partnered with a French financial services company to solicit investment business from Libyan state-owned financial institutions in violation of the FCPA’s anti-bribery and internal accounting control provisions. See also Legg Mason, Inc. Criminal Investigation, Non-Prosecution Agreement (June 4, 2018).