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Second Circuit Rejects DOJ’s Expansive Jurisdictional Theory Of Prosecution In U.S. v. Hoskins

Judicial Decision

Appellate decisions construing the Foreign Corrupt Practices Act are extremely rare. Thus, many in the FCPA community have been awaiting the Second Circuit’s long-awaited (oral argument was held in March 2017 – see here) decision in U.S. v. Hoskins.

In this decision, the court rejected the DOJ’s expansive jurisdictional theory of prosecution against Lawrence Hoskins, a U.K. national. In many respects, the Second Circuit’s decision was based on the FCPA’s legislative history – demonstrating once again that the legislative history matters (see here for a prior post).

First some relevant background.

Prior posts herehereherehere and here summarized the trial court’s ruling, the trial court’s denial of the DOJ’s motion for reconsideration, and the appellate briefing.

In pertinent part, the trial court concluded:

“The Court [considers] the question of whether a nonresident foreign national could be subject to criminal liability under the FCPA, even where he is not an agent of a domestic concern and does not commit acts while physically present in the territory of the United States, under a theory of conspiracy or aiding and abetting a violation of the FCPA by a person who is within the statute’s reach. The Court concludes that the answer is “no” and that accomplice liability cannot extend to this Defendant under such circumstances and thus Defendant’s Motion to Dismiss Count One is granted in part and the Government’s Motion in Limine is denied.”

The issue before the Second Circuit, as stated in the DOJ’s brief, is as follows.

“Whether a foreign person (who does not reside in the United States) can be liable for conspiring or aiding and abetting a U.S. company to violate the Foreign Corrupt Practices Act if that individual is not in the categories of principal persons covered in the statute.”

As stated in the beginning of the Second Circuit’s opinion:

“[W]e are asked to decide whether the government may employ theories of conspiracy or complicity to charge a defendant with violating the Foreign Corrupt Practices Act (“FCPA”), even if he is not in the categories of persons directly covered by the statute. We determine that the FCPA defines precisely the categories of persons who may be charged for violating its provisions. The statute also states clearly the extent of its extraterritorial application. Because we agree with the district court that the FCPA’s carefully-drawn limitations do not comport with the government’s use of the complicity or conspiracy statutes in this case, we AFFIRM the district court’s ruling barring the government from bringing the charge in question.”

Later in the opinion, the court framed the issue as follows:

“The central question of the appeal is whether Hoskins, a foreign national who never set foot in the United States or worked for an American company during the alleged scheme, may be held liable, under a conspiracy or complicity theory, for violating FCPA provisions targeting American persons and companies and their agents, officers, directors, employees, and shareholders, and persons physically present within the United States. In other words, can a person be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal?”

After analyzing analogous case law, the court stated:

“[T]he carefully tailored text of the [FCPA], read against the backdrop of a well-established principle that U.S. law does not apply extraterritorially without express congressional authorization and a legislative history reflecting that Congress drew lines in the FCPA out of specific concern about the scope of extraterritorial application of the statute, persuades us that Congress did not intend for persons outside of the statute’s carefully delimited categories to be subject to conspiracy or complicity liability. Our conclusion is consistent with the reasoning of other courts that have addressed this question. See United States v. Castle, 925 F.2d 831 (5th Cir. 1991); United States v. Bodmer, 342 F. Supp. 2d 176 7 (S.D.N.Y. 2004).”

[…]

[T]he structure of the FCPA—confirms that Congress’s omission of the class of persons under discussion was not accidental, but instead was a limitation created with surgical precision to limit its jurisdictional reach. The statute includes specific provisions covering every other possible combination of nationality, location, and agency relation, leaving excluded only nonresident foreign nationals outside American territory without an agency relationship with a U.S. person, and who are not officers, directors, employees, or stockholders of American companies.”

The court then turned to the FCPA’s legislative history and begins as follows:

“When President Carter took office in 1977, sponsors of the 1976 precursor to the FCPA exhorted the administration to take an active approach in promoting an anti-bribery statute comparable to the 1976 bill that passed the Senate but failed to pass the House. See Mike Koehler, The Story of the Foreign Corrupt 11 Practices Act, 73 OHIO ST. L.J. 929, 996 (2012). The Carter Administration indicated its support for such a statute, and, in particular, suggested that “specific criminal penalties” for acts of bribery were the correct approach to solving the problem.

Although it hoped to pass aggressive anti-bribery legislation, the Administration recognized that a statute focusing on criminalization, rather than disclosure, required a delicate touch where extraterritorial conduct and foreign nationals were concerned.”

Over the next 20+ pages of its opinion, the court then proceeds to examine the FCPA’s extensive legislative history including an important component of the legislative history – a markup session held by a Senate Committee. (See Markup Session on S. 305, Corporate Bribery, S. Comm. on Banking, Hous. and Urban Affairs, 95th Cong. 1-2 (1977). The court stated:

“The markup session provides powerful evidence of two points relevant to this case. First, before the Carter Administration’s concerns and the markup hearing detailed above, the Senate had planned to adopt a bill that largely omitted references to individual liability, and that instead relied on theories of conspiracy and complicity to tie individual action to corporate misdeeds. In response to administration concerns—particularly concerns regarding the clarity of liability and its application to foreign persons—the Senate rejected its prior approach. Instead, it opted for a version of the bill that was not reliant on conspiracy or complicity theories. Rather, it defined, with great precision, who would be liable.”

After its extensive review of the legislative history, the court summed up its conclusions as follows.

“The strands of the legislative history demonstrate, in several ways, the affirmative policy described above: a desire to leave foreign nationals outside the FCPA when they do not act as agents, employees, directors, officers, or shareholders of an American issuer or domestic concern, and when they operate outside United States territory.

First, it is clear that the FCPA’s enumeration of the particular individuals who may be held liable under the Act demonstrated a conscious choice by Congress to avoid creating individual liability through use of the conspiracy and complicity statutes. As discussed above, the statute’s initial approach was to place liability for bribery largely upon companies, and then to allow prosecution of individuals for conspiring with companies or aiding and abetting their violations of the law. But the Carter Administration objected to that approach, voicing concerns for due process protections and clarity of rules for foreign persons. The statute was amended; the amended version narrowly tailored the liability for foreign individuals, and did not contemplate a reversal of that narrow tailoring by means of conspiracy and complicity theories. These changes were principally discussed in the Senate. But the House bill, and the final legislation, were structured similarly to the Senate’s revised bill. At the same time that the Senate made these changes, the House was revising its own legislation to cut back on liability placed upon foreign agents, again because of specific concerns expressed by executive-branch officials regarding overreach.

The 1998 amendments surely extended the statute’s jurisdictional reach. But in doing so, Congress delineated as specifically as possible the persons who would be liable, and under what circumstances liability would lie. None of the changes included liability for the class of individuals involved in this case. And despite the government’s urging to the contrary, nothing in the OECD Convention required Congress to create such liability.

Congress also repeatedly emphasized that out-of-reach foreign entities  should not create concern because American companies would be liable for  violating the Act even if they did so indirectly through such persons. […]

Finally, limitations on liability for foreign nationals based on conspiracy and complicity theories were sensible given congressional concerns and aspirations in enacting the FCPA. In passing the statute, Congress was largely concerned with ensuring the SEC’s ability to supervise and police companies … as well as the negative perception that bribery could create for American companies, its effect on the marketplace, and the foreign policy implications of the conduct … But Congress also desired that the statute not overreach in its prohibitions against foreign persons. Protection of foreign nationals who may not be learned in American law is consistent with the central motivations for passing the legislation, particularly foreign policy and the public perception of the United States. And the desire to protect such persons is pressing when considering the conspiracy and complicity statutes: these provisions are among the broadest and most shapeless of American law, and may ensnare persons with only a tenuous connection to a bribery scheme.

In short, the legislative history of the FCPA further demonstrates Congress’s affirmative decision to exclude from liability the class of persons considered in this case and we thus hold that the government may not override that policy using the conspiracy and complicity rules.”

Thereafter, the court stated:

“Even if we were not persuaded that Congress had demonstrated an affirmative legislative policy in the FCPA to limit criminal liability to the enumerated categories of defendants, we would still rule for Hoskins because the government has not established a ““clearly expressed congressional intent to” allow conspiracy and complicity liability to broaden the extraterritorial reach of the statute.”

[…]

“Consequently, the presumption against extraterritoriality bars the government from using the conspiracy and complicity statutes to charge Hoskins with any offense that is not punishable under the FCPA itself because of the statute’s territorial limitations. That includes both charges that are the subject of this motion—conspiracy to violate Sections 78dd-2 and 78dd-3 of the FCPA, and liability as an accomplice for doing so—because the FCPA clearly dictates that foreign nationals may only violate the statute outside the United States if they are agents, employees, officers, directors, or shareholders of an American issuer or domestic concern. To hold Hoskins liable, the government must demonstrate that he falls within one of those categories or acted illegally on American soil.”

Notwithstanding the above, in its opinion the court allowed the government to pursue FCPA charges based on the factual issue of whether Hoskins was “an agent of a domestic concern.” As stated by the court:

“Provided that the government makes this showing, there is no affirmative legislative policy to leave his conduct unpunished, nor is there an extraterritorial application of the FCPA. Accordingly, the government should be allowed to argue that, as an agent, Hoskins committed the first object by conspiring with employees and other agents of Alstom U.S. and committed the second object by conspiring with foreign nationals who conducted relevant acts while in the United States.”

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