Previous posts here and here analyzed the Second Circuit’s recent decision in U.S. v. Hoskins.
This post continues the coverage by highlighting what others are saying about the rare FCPA appellate court decision.
Excerpted below are approximately 25 law firm client alerts on the topic.
“In a case that demonstrates the need to challenge in court the U.S. government’s interpretation of how far the FCPA reaches, the United States Court of Appeals for the Second Circuit rejected DOJ’s attempt to use aiding and abetting and conspiracy theories to prosecute an individual who otherwise was not covered by the FCPA.
[…]
This holding is directly contrary to the “guidance” that the DOJ and SEC issued with respect to the FCPA’s reach. In its 2012 Resource Guide, the government states:
“Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.”
The Second Circuit Hoskins decision makes it clear that this is not the case – either for conspiracy charges or for aiding and abetting charges. One can only hope that the amendments to the Resource Guide will be issued quickly in the wake of this decision.”
“Historically, large companies, whether public or private, have not been willing to go to trial over FCPA allegations, preferring discussions with the government to earn a declination or enter into an acceptable settlement agreement. This has resulted in a lack of developed case law.
In recent years, the DOJ has reaffirmed its emphasis on prosecuting individuals, not just companies, for FCPA violations. Individuals such as Hoskins, especially those able to engage competent counsel, will be more likely to put the DOJ’s more aggressive theories to the test. The court’s exhaustive analysis of the FCPA’s legislative history will support any party who wants to contest DOJ’s expansionist theories. Time will tell whether this use of legislative history will also result in judicial pushback on the DOJ’s interpretation of who is a “foreign official,” the definition of “instrumentality,” and what proof is needed to satisfy the business nexus requirement that a bribe must be in connection with “obtaining or retaining” business.”
“The holding is of significant interest as it narrows the DOJ’s jurisdictional reach over nonresident foreign nationals. Notably, this ruling directly contradicts the DOJ and SEC’s FCPA Resource Guide, which states that the U.S. government may hold non-resident foreign nationals liable for conspiring to violate the FCPA “even if they are not, or could not be, independently charged with a substantive FCPA violation.”
[…]
The Second Circuit’s Hoskins opinion leaves open multiple questions. First, will the DOJ continue to pursue the same Hoskins-style FCPA prosecutorial theory in other Circuits? Although Hoskins is binding on the DOJ in the Second Circuit, nothing precludes it from pursuing its theory in other Circuits, perhaps in the hopes of generating a Circuit split, which would enhance the odds of Supreme Court review.”
“Judge Learned Hand famously wrote that conspiracy law is the “darling of the modern prosecutor’s nursery.” To be sure, conspiracy law broadens the federal prosecutor’s power significantly. But, as the Second Circuit’s much-anticipated decision in Hoskins now shows, the scope of conspiracy is not without limits. At least in the FCPA context, US conspiracy law can no longer sweep in foreign nationals who neither work for a US company nor physically present in the United States, which could have a dramatic impact on FCPA enforcement.
[…]
The recent Hoskins decision punctuates a rare litigation of an FCPA case and presents a defeat for the government’s expansive theory of FCPA liability. The Second Circuit followed a trend of expressing concern about potential overreach of US law beyond US borders, and highlighted that the presumption against extraterritoriality is alive and well, even in the context of statutes that clearly have extraterritorial reach. As a result, Hoskins offers new potential defenses to foreign nationals being investigated (or awaiting trial) for FCPA violations. Foreign nationals accused of conspiring to violate or aiding and abetting a violation of other US laws may seek to benefit from Hoskins as well.”
“[T]he Second Circuit’s ruling in Hoskins is a rare judicial interpretation of a complex statute that runs directly contrary to the government’s previously issued guidance in this area. In this regard, it highlights the fact that the DOJ’s and SEC’s interpretation of the law and their respective mandates for enforcement are not necessarily accurate or ultimately enforceable in court.”
“The Second Circuit’s opinion, which is among the few appellate decisions construing the FCPA, limits the DOJ’s ability to prosecute foreign persons—either individuals or companies—for FCPA violations based solely on conspiracy or aiding and abetting theories of liability unless they travel to or engage in proscribed conduct in the territory of the U.S. The opinion flatly contradicts the DOJ and SEC’s FCPA Resource Guide issued in 2012, which sets forth the government’s view that a foreign national or company may also be liable under the FCPA based on aiding and abetting or conspiring with an issuer or domestic concern, but it leaves open the possibility that, where supported by the facts, the government may still prosecute foreign nationals as agents of U.S. issuers and domestic concerns. Whether the DOJ now actually proceeds against Hoskins on this theory, and if so how it goes about establishing agency, will be instructive.
[…]
The decision in Hoskins also may have important implications for foreign corporations, particularly those that conduct international business through joint ventures, consortia, and other teaming arrangements that involve American companies (“domestic concerns”) and/or U.S.-listed companies (U.S. or foreign “issuers”). Pre-Hoskins, the conspiracy and aiding and abetting theory, which the Second Circuit has now rejected, was the basis for settled actions involving Marubeni, JGC Corporation, and Snamprogetti Netherlands B.V. in connection with the TSKJ joint venture cases in which the DOJ charged foreign companies that were neither issuers nor domestic concerns, and based jurisdiction on aiding and abetting a domestic concern to execute a bribery scheme. Post-Hoskins, foreign companies that find themselves subject to DOJ or SEC investigations solely because of their business association with a domestic concern or issuer may have stronger jurisdictional defenses.”
“The U.S. Department of Justice has long taken an expansive view of the territorial reach of the Foreign Corrupt Practices Act (FCPA). Indeed, the FCPA Resource Guide specifically states that foreign nationals and companies may be criminally liable for conspiring or aiding and abetting an FCPA violation even if they did not take any act in furtherance of the violation within the territory of the United States. However, in a rare court decision interpreting the FCPA, the U.S. Court of Appeals for the Second Circuit dealt a blow to the DOJ’s expansive reading.
[…]
The Second Circuit’s ruling is significant because it rejects a long-held view by the DOJ that it can charge foreign nationals under an aiding and abetting or conspiracy theory and gives practitioners leverage to push back on the DOJ’s expansive view of FCPA jurisdiction. From a practical standpoint, the more significant impact may come after the case has been remanded to the lower court, since presumably the court will add some 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 individuals and companies that operate internationally.”
“The case is noteworthy because it limits the DOJ’s ability to assert jurisdiction over non-resident foreign nationals for conduct outside of US territory—at least for purposes of the FCPA and within the Second Circuit. Whether the DOJ will attempt to expand the extraterritorial reach of other statutes—or of the FCPA in other federal circuits—remains to be monitored.”
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“The DOJ and the U.S. Securities and Exchange Commission (“SEC”) have historically taken an aggressive approach to jurisdiction, particularly through secondary liability theories such as conspiracy and aiding and abetting. In fact, the DOJ and SEC’s FCPA Resource Guide states that “[a] foreign national or company may also be liable under the FCPA if it aids and abets, conspires with . . . an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States,” a statement that is seemingly at odds with the Second Circuit’s decision. The Hoskins decision may limit the U.S. government’s ability to continue to pursue foreign nationals under conspiracy or complicity charges.”
“The decision rejects the government’s long-held position about the scope of the FCPA, and is likely to have substantial ramifications for some existing FCPA cases and future enforcement actions. The decision is likely to draw additional scrutiny of the government’s aggressive positions concerning the scope of agency principles under the FCPA.
[…]
Even today, the Department of Justice’s FCPA website states that “the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.” (emphasis added.) The Second Circuit’s decision, however, rejects that view. Under the Second Circuit’s holding, merely causing someone else to commit an FCPA violation is not sufficient; rather, the person must be in one of the categories enumerated in the statute, and a foreign employee of a foreign company acting outside the United States does not fall into any such category.
[…]”
The government has not decided whether to seek rehearing en banc or seek certiorari in the Supreme Court, but it is likely prosecutors are seriously considering their appellate options. […] The absence of a dissenting opinion from such an experienced panel may make it difficult for the government to convince the Solicitor General to authorize an appeal. Indeed, in United States v. Allen, 864 F.3d 63 (2d Cir. 2017), a case involving the same prosecutorial office, an almost identical panel of judges from the Second Circuit, and the prosecution of a foreign national in a closely watched white-collar case, the government sought rehearing en banc, but did not seek certiorari.”
“Some key takeaways from the Second Circuit’s decision include the following: This case limits the DOJ’s ability to bring FCPA charges against foreign nationals who did not act in the United States; It also potentially limits the scope of the DOJ’s investigation using traditional conspiracy and aiding and abetting theories; The DOJ will likely increasingly develop evidence regarding conduct in the United States by foreign nationals, and potential avenues of agency association among the various parties; The DOJ will continue its trend of including money laundering charges, where available, against individual defendants; The DOJ will likely seek opportunities in other cases to limit or collaterally challenge the Second Circuit’s ruling.”
“In the first appellate court decision to address the question, the Second Circuit held that a nonresident foreign national, who is acting entirely outside the United States and who is not an employee or agent of an American company, cannot be prosecuted for violating the FCPA on a theory of conspiracy or accessory liability. These theories of liability have been effective prosecutorial tools in FCPA negotiated resolutions for many years because they do not require that the government prove that the defendant physically entered the United States or was otherwise covered by the FCPA. By substantially limiting the cases where these charges are available, the Second Circuit decision dealt a significant setback to prosecutors seeking expansive theories on which to build an FCPA case against non-U.S. companies and individuals.
[…]
[W]ith respect to liability under Section 78dd-3, the Second Circuit’s decision in Hoskins may affect the strength of arguments available to defendants about the level of contacts needed to establish a sufficient jurisdictional nexus. The three-judge panel in Hoskins emphasized throughout the opinion that Hoskins cannot be held liable because he was never physically present in the United States.18 The panel’s statements on this conform with other case law in this area, which has held that the territorial requirement of Section 78dd-3 is understood to be more stringent than the interstate commerce requirement in Sections 78dd-1 and 78dd-2 and requires an act undertaken while physically present in the United States, as opposed, for example, to routing a transaction through a U.S. bank. These prior decisions, however, had not addressed the issue of whether phone calls, emails, or dollar-denominated payments can satisfy the “in the territory” element of Section 78dd-3. The Hoskins decision adds further support for the argument that physical presence in the United States is required for liability under Section 78dd-3 of the FCPA.”
“Although at first blush the Second Circuit’s decision would appear to apply to a narrow subset of potential defendants, for individuals in comparable circumstances the decision is a significant one. The importance of the issue to DOJ is clear from its decision to take an unusual interlocutory appeal. The clear defeat represents a rare court consideration of the DOJ’s customary aggressive approach to FCPA enforcement.”
“This decision is a significant blow to the DOJ’s expansive view of the jurisdictional reach of the FCPA and a crucial judicial check on the DOJ’s prosecutorial practices with respect to the FCPA. Significantly, it also offers guidance to foreign nationals in future DOJ prosecutions and emphasizes the importance of judicial opinions in checking the DOJ’s broad interpretations of the FCPA.”
“On remand, the government may still pursue the alleged FCPA conspiracy and substantive violations under an agency theory. That may offer insight into the infrequently litigated issue of what factual showing is necessary for the government to establish that someone is an agent of a “domestic concern” under the FCPA.”
“With this decision, the Second Circuit rejected two jurisdictional theories used by DOJ to enforce the FCPA. The agencies’ joint 2012 Resource Guide to the FCPA outlined the government’s view that individuals and companies can be charged with aiding and abetting an FCPA violation, and that such individuals and companies, “including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.” 8 The Second Circuit’s decision rejects this interpretation of the law and holds that such an individual or company can be liable only if the Department can independently charge a substantive FCPA violation.
[…]
[T]he Hoskins decision is an example of a court strictly construing the FCPA in a manner that does not align with DOJ’s aggressive enforcement of the statute. Although the issue in Hoskins was the alleged violation of the anti-bribery provisions of the FCPA, the Second Circuit’s analysis appears to run counter to other aggressive assertions of jurisdiction by DOJ. For example, such analysis seems to contradict DOJ’s theory that foreign subsidiaries of US issuers can be held criminally liable for “causing” books and records violations based solely on extraterritorial conduct by the foreign subsidiary that lacks a specific nexus between the illicit conduct and the United States. This ruling suggests that these theories, along with other theories of individual liability that are largely untested in court, may be vulnerable to challenge under the right circumstances. More generally, the Second Circuit’s decision raises the possibility that its narrow construction of the FCPA could apply to other areas in which the DOJ and SEC have staked out aggressive theories of the law, such as the requirements of the internal controls provisions, the definition of a “foreign official,” and what constitutes an “instrumentality” of a foreign government.”
“The ruling significantly restricts the government’s ability to prosecute foreign actors for their role in foreign bribery schemes, even if those schemes also involve U.S. companies, U.S. actors or even U.S. subsidiaries. The ruling also shows a continued commitment—in line with recent U.S. Supreme Court precedent—to restrict the extraterritorial application of U.S. criminal law to the wording of the statute in question. This should provide foreign companies and individuals caught up in FCPA enforcement actions with significant defenses to efforts to bring them to trial in the United States.”
“Hoskins is unlikely to have a meaningful impact on continued FCPA enforcement against non-U.S. companies and persons.
First, the decision applies narrowly to accessorial liability and the majority of FCPA actions against foreign companies do not rely on accessorial liability as the sole basis for jurisdiction. Typically such cases fall into two categories: (1) actions against non-U.S. companies in overseas joint ventures with a domestic concern or issuer; and (2) actions against non-resident non-U.S. nationals that oversaw or overlooked improper conduct by a U.S. subsidiary, business partner or agent.
Second, the decision leaves intact the FCPA’s defined scope of liability for foreign nationals who: (1) act on American soil; (2) are officers, directors, employees or shareholders of U.S. companies; or (3) are agents of U.S. companies.
Third, Hoskins does not offer any protection against the growing trend of anti-corruption enforcement by non-U.S. regulators. Foreign regulators are no longer content to allow the U.S. alone to collect large penalties in anti-corruption investigations. In addition, the DOJ and SEC regularly coordinate enforcement efforts with its counterparts in the United Kingdom, France, Germany, Switzerland, the Netherlands, Brazil, and others. In recent months, the DOJ has announced its first coordinated settlements with authorities in France and Singapore. This trend of non-U.S. enforcement and cooperation between regulators is only likely to increase.
In short, although Hoskins limits U.S. jurisdiction when relying solely on statutes other than the FCPA, this decision does not alter the corruption risk calculus for companies operating in high-risk markets. U.S. and non-U.S. companies should continue to take efforts to detect, prevent, and remediate bribery-related conduct.”
“While Hoskins assuredly narrows the ability of the DOJ to bring FCPA actions against foreign nationals involved in bribery schemes, the scope of its future applicability remains to be seen. Foreign nationals participating in a scheme, but acting outside the United States, may not face criminal sanctions under the FCPA. Liability would depend upon the government’s ability to establish an agency relationship with an issuer or domestic concern or show that the foreign national took an act in furtherance of bribery in the United States. If that foreign national acted as an agent of an issuer or domestic concern, both direct and vicarious liability under the FCPA would still be allowed, even after Hoskins. An agency analysis now becomes more important in assessing potential FCPA liability for individuals.”
“As with most judicial decisions, the ramifications of this opinion may be felt across regulatory areas where foreign persons conduct business both within and outside the United States. Whether the same limitations would apply, for example, in export control investigations that routinely involve alleged direct or indirect violations of US laws by foreign persons is a question that is likely to arise. The government aggressively pursues foreign persons and foreign companies in the sanctions and export control space, as the many settlements with foreign companies reflect. This Second Circuit decision may result in subtle shifts by the government as it decides how and under what circumstances enforcement can occur. With the increased focus on sanctions that now affect allies as well as adversaries, enforcement actions such as those discussed in the Hoskins case may raise new complications.”
“This case is at the confluence of several forces. First, the government has increasingly sought to prosecute individuals, not just their corporate employers. Most corporations choose to resolve FCPA investigations by some form of agreement to defer charges or plead guilty, and pay substantial financial penalties. Individuals, however, have been more willing to challenge the legal basis of FCPA charges, thus leading to decisions such as this one. Second, in recent years the U.S. Supreme Court has repeatedly signaled caution in the extraterritorial application of U.S. law. This decision fits into that overall trend. Third, the government continues to seek to prosecute foreign actors in U.S. courts for FCPA violations, even while it is also working more cooperatively with prosecutors in other countries on parallel investigations. This decision may lead to a further rebalancing of prosecution efforts between the DOJ and its foreign counterparts, in which foreign prosecutors take more of the lead in bringing charges against foreign individuals.”
“Given the tendency of companies subject to FCPA-related allegations to enter into negotiated settlements with the DOJ and SEC, litigated decisions construing the FCPA have been rare and largely limited to claims against individuals, who have less incentive to settle. Given this scarcity of judicial opinions construing the FCPA, decisions such as Hoskins provide useful guidance as to the elements and scope of liability under the statute.
Like Castle before it, the Hoskins decision demonstrates an unwillingness on the part of certain courts to expand FCPA-related liability beyond the categories of persons explicitly subject to the statute. It potentially places a significant limitation on the application and extraterritorial reach of the FCPA and jeopardizes the government’s ability to charge foreign companies and individuals who have conspired to violate the FCPA, but who are not agents, employees, directors, or officers of any company that issues stock on a U.S. exchange or any other U.S. company and have not taken any action in furtherance of the FCPA violation while in the United States. Several high-profile FCPA settlements in recent years, including in connection with the TSKJ joint venture, have appeared to rely on conspiracy and complicity theories invalidated by Hoskins.
The degree to which this limitation will prove meaningful, however, remains to be seen. As the Hoskins decision makes clear, the government frequently takes an expansive view of the doctrine of agency in making its charging decisions. It is therefore possible that the government will be able to avoid the practical effect of the decision’s holding in many cases by using agency theories to charge foreign individuals and companies that otherwise would have been charged as conspirators or accomplices before Hoskins. The DOJ’s continued pursuit of such a theory against Hoskins will provide some indication of the future viability of that path as an alternative to conspiracy liability in cases in which a defendant’s agency relationship is unclear.”
“Narrow practical impact for many foreign nationals: With Hoskins, the Second Circuit has limited the FCPA’s extraterritorial reach somewhat, but has left the door open for conspiracy claims against a non-resident foreign national as long as the government also establishes that the foreign national is an agent of an issuer, domestic concern, or another foreign national who acted in furtherance of a bribe payment in the territory of the U.S. The number of individuals who fall in the group affirmatively beyond the scope of the FCPA after Hoskins may end up being relatively small.
Increased focus on the scope of “agency”: Left unresolved by this decision is whether Hoskins was, in fact, an agent of Alstom’s U.S. subsidiary. The contours and scope of agency in the FCPA context will likely be the subject of significant litigation going forward. And while there are specific legal elements required for a showing of agency, it is an intensely factual inquiry, which could make it more difficult (but not impossible) to persuade a court to address the issue at the motion to dismiss stage. It could be some time before clarity is provided by subsequent rulings.
Potential implication for foreign joint venture partners: One place where the Hoskins decision may have significant impact is on the U.S. government’s ability to reach the conduct of foreign companies that enter into joint ventures with U.S. issuers or companies. Historically, DOJ charged the foreign JV partners with conspiracy to violate the FCPA.25 However, the Second Circuit’s decision in Hoskins would clearly preclude this, and require the government to prove that the foreign national acted as an agent of a U.S. issuer or domestic concern. Given the complexity of international JV structures, it likely will be difficult for the government to prove that a JV partner acted as an agent of its U.S. JV partner rather than of the JV itself. Moreover, given the uncertainty in federal law as to the meaning of “agency” and the fact-specific nature of that determination, contracting parties would be well advised to include contractual provisions specifying their intent not to form an agency relationship. Although courts will look at the effective rather than the formal relationship between the parties, such contractual language is relevant evidence for a factual determination.”
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