Second Circuit Presents U.S. Companies with Historic Opportunity to Defend Against FCPA Liability | Alston and bird


The Second Circuit has made the once straightforward government task of attributing vicarious liability to a corporate officer under the Foreign Corrupt Practices Act considerably more difficult. Our team of white-collar, government, and insider investigations takes a closer look at this powerful new FCPA defense and how American businesses should use it.

  • The Hoskin rulings upset the norm that a company should only benefit from unlawful behavior
  • Liability now hinges on whether the U.S. corporation actually controls a foreign national
  • Hoskin II allows domestic companies to challenge government theory of imputed liability

The Foreign Corrupt Practices Act (FCPA) involves the application of US law to extraterritorial misconduct. The FCPA is jurisdictionally limited to domestic companies (essentially U.S. citizens or entities organized under U.S. law or with a principal place of business in the United States) and their agents and aliens who engage in acts prohibited in the United States . But in many cases, the alleged misconduct is committed by individuals or entities that are neither a national company nor present in the United States.

This raises two issues of extraterritorial application of US FCPA jurisdiction. First, can U.S. authorities even indict these foreign actors for alleged FCPA violations? Second, and more importantly for US companies, can a domestic company be held liable for corruption committed abroad by a person or entity that it does not control?

The United States Court of Appeals for the Second Circuit resolved the first issue regarding individual liability in 2018 in United States vs. Hoskins (Hoskins I). This case concerned a British citizen, Lawrence Hoskins, who was accused of wrongdoing while working in France for the British subsidiary of a French company. The second circuit was held at Hoskin I that FCPA criminal liability could not extend to Hoskins for acts of corruption outside the United States based on the theory that he had conspired with an American subsidiary of the French parent company.

On remand, the government alleged that Hoskins was nonetheless responsible because he was the agent for the U.S. branch. Last month in Hoskin II, the Second Circuit upheld the district court’s judgment of acquittal despite a jury verdict. The appeals court found that although Hoskins worked closely with the U.S. subsidiary, it did not control his actions enough to subject him to FCPA liability.

But the reasoning of Hoskin II is not limited to deporting foreign nationals from US jurisdiction. It also likely immunizes US domestic concerns from FCPA liability for actions taken by foreign nationals over whom they had no control, including those employed by overseas subsidiaries.

Apply the logic of Hoskin II, US companies facing potential liability under the FCPA should consider as a defense if there is sufficient evidence that the company “actually controlled” the bad actor. Without this proof, there can be no liability. And the mere fact that the bad actor worked for a foreign subsidiary of an American company is not enough, even when he “collaborated with and supported” the American company.

Foreign nationals have limited FCPA exposure

In 2013, the United States Department of Justice accused Hoskins, a British citizen employed by a British subsidiary of the French company Alstom SA, of participating in a scheme to bribe officials in Indonesia to obtain an electricity contract from $118 million. The Justice Department specifically alleged as part of the scheme that Alstom’s U.S. subsidiary hired two consultants to bribe Indonesian officials.

Although Hoskins did not work for the American subsidiary and never set foot in the United States during the alleged scheme, the government maintained that he was responsible for selecting and authorizing payments to consultants. . Among other things, the government accused Hoskins of conspiring to violate the FCPA with Alstom’s U.S. subsidiary and aiding and abetting its material violations of the FCPA.

The district court granted Hoskins’ motion to dismiss the conspiracy count to the extent that he charged Hoskins with conspiring to violate the FCPA as an agent of a foreign company or having committed overt acts outside the United States. The district court also denied the government’s motion to block Hoskins from arguing that he could not be convicted as an accomplice unless the government first proves he was an agent of a company. national or that he had committed a fault in the United States.

The second circuit of Hoskin I upheld the district court’s dismissal of the conspiracy charge, finding that the government cannot charge a defendant with conspiring to violate or aiding and abetting an FCPA violation if he is not otherwise primarily responsible. The Second Circuit pointedly noted that “[t]he is single, obvious [gap in FCPA coverage] has jurisdiction over a foreign national who acts outside the United States, but not on behalf of a United States person or corporation as an officer, director, employee, agent, or shareholder.

Strict application of agency principles

The Hoskins case went to trial on remand, with the jury finding him guilty of conspiracy to violate the FCPA and aiding and abetting FCPA violations, both as agent of the American subsidiary of Alstom. The district court, however, entered a judgment of acquittal on the grounds that the government had failed to prove that he was an agent of the US subsidiary.

The second circuit of Hoskin II confirmed the acquittal, applying agency law in the strict sense of the term, specifying that the principal – that is to say the American subsidiary of Alstom, the national company subject to American jurisdiction – must control the ‘company. There was no agency relationship, and therefore no FCPA liability for Hoskins, because the U.S. subsidiary “did not hire Hoskins, lack the ability to fire Hoskins, and did not have its say on Hoskins’ compensation.”

This despite the fact that the US affiliate had actually directed some of Hoskins’ actions. For example, the US subsidiary asked him to “perform certain tasks” and Hoskins asked the US subsidiary for “approval” to hire a consultant later accused of bribing officials. governmental. Ultimately, however, the Second Circuit concluded that if there was “evidence that Hoskins supported [the U.S. subsidiary] in his employment relationship with the company, it is not enough to establish that [the subsidiary] exercised control over the scope and duration of his relationship with Hoskins.

The Second Circuit gave domestic companies a powerful FCPA defense

Traditional agency principles have long made it easy to assign FCPA liability to an alleged principal based on an agent’s actions. But unless an agent was an employee or subsidiary of a domestic company or otherwise present in the United States when all or part of the alleged misconduct occurred, Hoskin II has now made the government’s once straightforward task of attributing vicarious liability to a corporate principal considerably more difficult. Additionally, the impact of Hoskin II is not limited to personal jurisdiction over foreign nationals – it implicitly extends to whether the government can even blame domestic concerns for the misconduct these foreign actors allegedly committed.

Most domestic companies are unable or unwilling to test the strength of government agency evidence in FCPA cases. This includes where the government seeks to assert FCPA liability based on the conduct of a foreign national or foreign company. But the Hoskin the decisions limit the domestic company’s liability to cases where the national company actually exercised control over the putative foreign agent.

In short, FCPA liability is not based on whether the domestic company would have benefited from the illegal conduct of the foreign national, as has long been the norm under domestic criminal law. Rather, liability depends on whether the national company effectively controlled the foreign national. And the mere fact that a foreign national worked for an affiliate, “supported” the U.S. affiliate, and “sourced and hired consultants at the request of” the U.S. affiliate is not enough. Hoskin II.

It follows that when a domestic company faces putative FCPA liability based on the conduct of a foreign national, which is the most common FCPA scenario, Hoskin II allowed the national corporate target to challenge the government’s theory of imputed liability. This is particularly the case when the foreign national is employed by a non-US entity, including a foreign subsidiary of a domestic company. This is also true even when the domestic company controls the structure and specifications of a transaction, including through contractual relationships, but leaves the implementation and execution of these instructions to a foreign actor (i.e. that is to say the facts of Hoskin II).

Rather, what is needed to establish an agency – and thus the domestic firm’s FCPA liability – is affirmative evidence that the domestic firm knew about and actively managed foreign bribery, evidence that often simply isn’t. not here.

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