This previous post highlighted the recent decision in the Hoskins matter in which the trial court judge granted Hoskins’s post-trial motion of acquittal as to all FCPA charges.
Proving once again that it is an active group of writers, FCPA Inc. had much to say about the recent decision and this post rounds up what others are saying about the decision.
“The government is likely to appeal Judge Arterton’s decision, though the opinion itself does not call into question or otherwise limit the Second Circuit’s landmark 2018 ruling. Rather, this decision demonstrates the nuanced, fact-based analysis courts will need to undertake to determine whether an agency relationship exists. In this case, the government had to conform its proof at trial to the Second Circuit’s decision, which left a single, narrow pathway for the government to prove an FCPA offense: establish that Hoskins was API’s agent. The government is now on notice of the potentially high bar in certain cases to prove agency and will have to plan its cases accordingly. The government could either marshal additional evidence of control, or it may look to charge cases differently to avoid having to rely on the agency requirement of the FCPA as the sole basis to sustain a conviction.
Finally, while the Hoskins decision may complicate FCPA prosecutions of certain individuals – namely foreign nationals acting entirely outside of the United States, foreign executives of American issuers or companies headquartered in the United States could still be prosecuted for violations of the FCPA, as could executives of foreign corporations whose conduct occurs, at least in part, in the United States. Corporations with international operations should therefore continue to apply appropriate best practices with their compliance programs to mitigate foreign bribery risks.”
“The Hoskins case involves unique facts and Judge Arterton’s opinion is unlikely to be the last word. The government will almost certainly file an appeal.
But the case marks a notable setback for DOJ’s FCPA Unit, which often takes aggressive jurisdictional positions in its investigations of individuals and companies. Because these investigations are so often conducted and resolved prior to any court involvement, those aggressive positions typically go untested. Thus, while whether the Second Circuit will affirm Judge Arterton’s agency analysis remains to be seen, the decision represents an important check on DOJ in cases premised on an agency theory.
However, the fact that the court upheld Hoskins’s money-laundering convictions also serves as a reminder that DOJ’s statutory arsenal in foreign bribery cases remains broad and formidable.”
“An Unexpected Twist. The court’s ruling was unexpected, even for this case, which has seen years of litigation, including appeals to the Second Circuit. It is rare for a court to set aside a jury’s verdict and acquit a defendant because a court must uphold the jury’s verdict if “any rational jury” could have found that the defendant committed the crime. Also, this is not likely to be the end of the story; we expect the government to appeal Judge Arterton’s decision.
Substantive Legal Implications. The ruling certainly casts doubt on expansive FCPA liability theories and may limit the instances in which the DOJ prosecutes FCPA cases against foreign nationals that are not employed by domestic concerns and that did not act within the U.S. At a minimum, prosecutors will likely gather more evidence of a domestic concern’s control over an alleged agent, and may focus on evidence of the entity’s right to terminate the agent or otherwise impact the agent’s compensation.
Potential Precedential Value. While Judge Arterton’s opinion provides an extensive discussion of the principle of “control,” it is unclear whether the decision will have a meaningful impact on upcoming cases. The discussions of “control” and “agency” are nuanced and highly fact-specific, which may give the government room to distinguish future cases. However, the court’s analytical framework raises key considerations (e.g., whether the principal could fire or demote the agent, or whether the principal could impact the agent’s compensation) that future defendants may be able to use to their advantage.
Money Laundering. Despite the acquittal on seven FCPA-related counts, Judge Arterton’s decision upholding the money laundering charges signals that money laundering is likely to be a staple of government investigations and prosecutions going forward.”
“The Hoskins acquittal is a major setback for prosecutors in a case involving the potential limitations of the FCPA extraterritorial application to non-U.S. persons, though it is unclear whether DOJ will appeal. Further, the acquittal will likely have no practical impact on Hoskins’ sentence given his money laundering convictions. Regardless, the decision will have an impact on how DOJ investigates and prosecutes cases with respect to agency in the future. It will also have an impact on defendants who now have an additional basis for pushing back on DOJ’s expansive jurisdictional theories.”
“The acquittal is a noteworthy, though potentially temporary, setback to DOJ’s aggressive enforcement approach. The decision did not change the fact that liability for FCPA violations, even for non-U.S. persons who operate entirely outside of the United States, can exist where there is an agency relationship. Whether the DOJ decides to pursue such aggressive actions will continue to be highly fact-dependent.”
“The judgment of acquittal of the FCPA counts reinforces the significance of the Second Circuit’s decision in Hoskins, which put limitations on the extraterritorial reach of the FCPA in the conspiracy context. The district court’s decision makes clear that the government will not be able to limit the practical effects of the Second Circuit’s decision simply by making charging decisions that invoke an expansive view of the existence of an agency relationship. Instead, courts following Hoskins will engage in a fact-intensive inquiry to determine whether an agency relationship existed by examining whether the alleged principal had the right to control the defendant’s actions. In cases involving foreign resident defendants who do not enter the United States, factors relating to corporate separation of affiliates and the division of responsibilities and authority between employees of United States and foreign subsidiaries are relevant—and may prove to be important—considerations.
Because the inquiry is fact-intensive, however, courts addressing facts that meaningfully differ from those in Hoskins may sustain FCPA liability for foreign residents on the basis of an agency relationship. Additionally, the District Court’s denial of Hoskins’ motion for acquittal with respect to money laundering charges demonstrates the expansive reach of United States money laundering laws, which continue to provide a flexible, alternative means by which the government can prosecute foreign nationals alleged to have been involved in corrupt payments.
It remains to be seen whether other courts will follow the Second Circuit’s requirement that a foreign national located outside the United States may not be exposed to FCPA-related liability absent proof that the individual was acting as an employee, officer, director, or agent of a United States entity when engaged in the allegedly illegal conduct. One court has already explicitly declined to follow Hoskins—in late June 2019, in United States v. Firtash, the Hon. Rebecca R. Pallmeyer of the United States District Court for the Northern District of Illinois held that “controlling Seventh Circuit case law declines to impose the requirement recognized in Hoskins” that “even when charged via the federal conspiracy or complicity statutes, ‘foreign nationals may only violate the [FCPA] outside the United States if they are agents, employees, officers, directors, or shareholders of an American issuer or domestic concern.” In addition, how prosecutors and defense counsel react in other cases to the rulings in Hoskins will likely help determine whether those rulings engender or reflect significant limitations in the scope of FCPA-related liability for non-United States actors. At a minimum, it should be expected that FCPA-related prosecutions of foreign nationals employed by companies with United States affiliates will include significant focus on parent-subsidiary interactions and associations and traditional elements of principal-agency relationships.”
“As an initial matter, DOJ may appeal the District Court’s rulings, but it is not clear that DOJ will do so. For one thing, the opinion is heavily fact-based: Hoskins himself was not employed by the U.S. subsidiary, raising the factual question of whether the U.S. subsidiary was controlling his actions. Where, for example, the relevant foreign individual is employed by the foreign subsidiary of a U.S. company, it would likely be more straightforward for the government to establish that the individual was acting as the U.S. company’s employee or agent. Further, the money laundering convictions have been sustained, and even if the government were successful in overturning the judgments of acquittal, the Court alternatively granted Hoskins’s motion for a new trial on the FCPA charges. Regardless of how this plays out in this particular case, the Court’s decision is a reminder that the Second Circuit’s narrowing of the extraterritorial application of the FCPA has real teeth.
The Second Circuit’s 2018 ruling that the government cannot use conspiracy or accomplice theories of liability to reach a person unchargeable as a principal is not without controversy. It directly contradicted DOJ’s views in its 2012 Resource Guide to the U.S. Foreign Corrupt Practices Act, which stated that foreign nationals and companies may be liable for conspiring to violate the FCPA “even if they are not, or could not be, independently charged with a substantive FCPA violation.” Other courts have also disagreed with the Second Circuit. In 2019, the U.S. District Court for the Northern District of Illinois found that the Second Circuit’s holding in Hoskins contradicts Seventh Circuit precedent on accomplice and conspiracy liability, setting up a potential future circuit split between the Second and Seventh Circuits on this issue.
The District Court’s Hoskins ruling is a reminder that resort to an agency theory, as a way to avoid the implications of the Second Circuit’s opinion, potentially creates a heavy burden for the government. It remains to be seen how much of an obstacle Second Circuit law will be for DOJ in future FCPA prosecutions, given the heavily fact-based nature of the issue, but the District Court’s ruling may further incentivize DOJ to bring FCPA cases against non-U.S. persons in other Circuits, when available, to avoid the issue.”
“The court’s ruling is significant because it diminishes the ability of DOJ to take an expansive view of the extraterritorial reach of the FCPA under the agency theory and provides concrete guidance on the level of control necessary to establish an agency relationship. The ruling sets an appropriately high bar, carefully anchored in well-established agency principles. Under this ruling, it will be increasingly difficult for DOJ to argue that every employee of a subsidiary, joint venture, or affiliate is an agent of the parent company, or of other subsidiaries and affiliates, by virtue of shared ownership status. The Court has added welcomed clarity on the type of relationship necessary to establish that a foreign national who never enters the United States nor works for a U.S. company is an agent for purposes of falling within the coverage of the FCPA, which in turn will help to guide international companies on establishing relationships and reporting lines among their U.S. and non-U.S. subsidiaries and affiliates.”
“This opinion reaffirms that the jurisdictional reach of the FCPA is not always what the Department of Justice says it is. Companies and individuals must look past agreed-to DOJ and SEC resolutions in FCPA cases as to the actual scope of the statute. Only courts can decide the jurisdictional reach of the FCPA. In appropriate cases, potential defendants must assert their rights and take the issue to a court to resolve.”
“The District Court’s and Second Circuit’s earlier decisions in the Hoskins case—holding that prosecutors cannot use conspiracy or accomplice theories to prosecute non-resident foreign nationals acting outside the United States for violations of the FCPA—served as a significant check on DOJ’s expansive view of the extraterritorial reach of its jurisdiction under the statute. This constraint on the Government’s power appeared to be somewhat undermined by the jury’s verdict, as the finding of agency against a non-U.S. defendant who was neither employed nor controlled by the U.S. subsidiary seemed to set a low bar for future FCPA prosecutions. Assuming it survives appeal, Judge Arterton’s order overturning the verdict swings the pendulum back in the other direction, making clear that in order to establish FCPA liability, U.S. prosecutors must prove that a U.S. issuer or domestic concern had an actual right of interim control over the foreign national.
To be clear, however, that does not mean that non-resident foreign nationals are now free to engage in overseas corruption without fear of consequences from U.S. authorities. Prosecutors still possess powerful tools to prosecute corrupt activities by non-U.S. persons outside the United States— such as the ability to bring FCPA charges where an agency relationship can be established, or to use other statutes (e.g. the money laundering statutes) to prosecute offenders.”
“The court’s ruling arguably expands the scope of the agency defense for foreign nationals in FCPA actions. Without a sufficient connection to the U.S. or an agency relationship with a U.S. company, foreign nationals may be able to escape liability under the FCPA. However, the court’s denial of the defendant’s motion for a judgment of acquittal with respect to the money laundering counts shows that federal money laundering statutes may have a broader reach than the FCPA.”
“Although not binding on other courts, the district court’s decision represents a significant defeat for the government’s expansive theory of agent liability. Combined with the prior rulings against the DOJ in both the district court and Second Circuit, this decision may be an indication that courts share the defense bar’s concerns regarding overly expansive theories of liability under the FCPA. The high evidentiary bar set by Hoskins for establishing an agency relationship may cause prosecutors investigating similar cases to devote more time and resources to developing evidence of control of foreign nationals by US entities or persons in order to pursue an agency theory of liability.
But whether the Hoskins case will curtail the DOJ’s enforcement of the FCPA remains to be seen. Shortly after the jury’s verdict convicting Hoskins (though before the court’s most recent ruling overturning that conviction), Assistant Attorney General Brian Benczkowski commented that the DOJ will not seek to expand the scope of agency liability, but went on to say:
I want to be very clear on one important point: if the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the Department likely would strongly favor prosecution in those instances.
In addition, the Second Circuit’s decision rejecting DOJ’s conspiracy and aiding and abetting theories of liability under the FCPA has itself been challenged. A district court judge in Illinois last year expressly disagreed with the Second Circuit’s holding in Hoskins, setting up a potential circuit split if the case is affirmed on appeal by the Seventh Circuit.In that case, the court denied a motion to dismiss charges that Dmitry Firtash, a Ukrainian citizen, and Andras Knopp, a Hungarian citizen, conspired to violate the FCPA, among other federal criminal laws, in relation to a mining project in India. The court held that, even though these foreign defendants were not subject to liability for their conduct abroad under the substantive provisions of the FCPA—because the indictment did not allege that they were agents of a domestic concern or issuer or that they committed a specified illegal act in the United States—the defendants nevertheless could face secondary liability for conspiring to violate, or for aiding and abetting, a substantive violation of the FCPA.
Foreign individuals who are involved in schemes to bribe foreign officials for business should be aware that the long arm of US law—whether the FCPA or another statute—still can reach their misconduct. After all, Hoskins’ money laundering convictions still stand. Five other individuals have pleaded guilty in the case, and three more were charged last month with violating or conspiring to violate the FCPA and money laundering statutes.
Moreover, other countries—including Alstom’s home country of France—have been increasing their anti-corruption enforcement efforts in recent years and may step in to fill any jurisdictional voids left by the FCPA.”
“The Hoskins prosecution is an example of the aggressive jurisdictional theories that are sometimes used by the DOJ in FCPA cases. The court’s ruling is a setback for the government’s efforts to use these theories to apply the FCPA to nonU.S. citizens. The fact that the DOJ was able to obtain a conviction on such a thinly supported theory of agency could have emboldened federal prosecutors to continue to pursue, and even expand, such theories. Unlike corporate defendants, who often have business-related motives to settle FCPA matters, even in the face of defensible facts or overly aggressive theories of liability, individuals charged with FCPA offenses are more likely to put the government to its burden of proof. That, in turn, provides opportunities for trial and appellate judges to rule on the DOJ’s interpretation of the FCPA and, where appropriate, scale back theories that they find unsupported by the law.
Although the DOJ still may pursue prosecutions through agency theories, the trial court’s ruling in Hoskins’s case should be a check on an overly aggressive use of such theories. The court’s ruling also may help corporations under investigation push back on the use of such theories against corporate defendants. The decision also gives prosecutors a clearer roadmap of the kind of evidence they will need in the future to establish agency-based liability. The key factors in the court’s agency analysis, such as the entity’s right to assess performance, impact compensation, and terminate a putative agent’s authority, may become flash points in future investigations. Finally, in light of the fact that the court allowed the money laundering convictions to stand, the DOJ may increasingly seek to rely on money laundering charges alongside FCPA charges, consistent with a trend that has emerged in recent years.”
“Pending appeal and any adverse ruling by the Second Circuit, this ruling further limits the DOJ’s ability to pursue foreign nationals who are not employees of issuers or domestic concerns. As we have previously reported, a prior Hoskins ruling established that the government could not charge a foreign national (such as Hoskins) as a co-conspirator when he was not otherwise subject to jurisdiction directly. This recent ruling also establishes guardrails around aggressive assertions of the principal-agent relationship by the DOJ (and SEC) in the FCPA context, emphasizing not only the formal principal-agent relationship but also the subjective understanding of the agent as to whether his/her actions were controlled by a particular principal. If sustained on appeal, this ruling, like the one before it, will make it harder for the DOJ to reach certain foreign nationals implicated in bribery schemes in violation of the FCPA when they have not taken clear acts in support of the improper conduct in the United States. Significantly, the ruling also could have implications for companies, not just individuals, where the government seeks to pursue joint venture partners or other noncontrolled entities.”
“Going forward, the district court’s decision to overturn Hoskins’ FCPA convictions may discourage the DOJ from focusing on the FCPA to prosecute corruption and bribery cases extraterritorially and may affect how the DOJ structures indictments. As demonstrated by the court’s unwillingness to overturn Hoskins’ money laundering convictions, foreign individuals (and corporations) are not off the hook – the DOJ is increasingly and successfully using the MLCA to secure convictions in corruption and bribery cases.”
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