August 27, 2018

Second Circuit Limits Reach of FCPA

On August 24, 2018, in a rare appellate decision interpreting the U.S. Foreign Corrupt Practices Act (the FCPA), a three-judge panel for the U.S. Court of Appeals for the Second Circuit issued a long-awaited decision in U.S. v Hoskins, which rejected the Department of Justice’s attempt to use aiding and abetting and conspiracy theories to prosecute a foreign national for FCPA violations, where the alleged crimes occurred outside of the United States, and where the defendant did not have sufficient ties to the United States. The Court also provided a synopsis of the four categories of “persons” covered by the FCPA, noting that “[t]he single obvious omission is jurisdiction over a foreign national who acts outside the United States, but not on behalf of an American person or company as an officer, director, employee, agent, or stockholder.” Notably, this holding is directly contrary to past guidance that the DOJ and U.S. Securities and Exchange Commission have issued with regard to the reach of the FCPA. It was not a complete win for the defense, however, as the Second Circuit confirmed that the government could prosecute the Defendant as an agent of a U.S. subsidiary, because that is a category of persons expressly covered by the FCPA.


The FCPA, as amended, 15 U.S.C. §§ 78dd-1, et seq., makes it unlawful for certain classes of people and entities to make payments to foreign government officials to assist in obtaining or retaining business. Lawrence Hoskins, the Defendant-Appellee, is a British national who worked for a U.K. subsidiary of Alstom S.A. and was assigned to work with a French subsidiary of Alstom on a project in Indonesia. He was indicted on FCPA and money laundering charges in connection with a bribery scheme to secure a $118 million project to build power stations for Indonesia’s state-owned and operated electricity company. The government alleged that Alstom’s U.S. subsidiary, headquartered in Connecticut, retained two consultants to bribe Indonesian officials to secure the $118 million contract, and that Hoskins approved and authorized payments to these consultants, knowing that some of the money would be used to pay a bribe. The government conceded that, although Hoskins “repeatedly e-mailed and called . . . U.S.-based co-conspirators” regarding the scheme while they were in the United States, Hoskins never entered the United States during the course of the alleged conspiracy from 2002 to 2009. Hoskins was not arrested until 2014, when he entered the U.S. Virgin Islands while on his way to Dallas, Texas, with his wife to visit their son. The government charged Hoskins under two theories – that he was an agent of the U.S. subsidiary, and that he aided and abetted or conspired with the U.S. subsidiary. The co-defendants in this case, who were employed by Alstom’s U.S. subsidiary, have all pleaded guilty. 

In August 2015, the U.S. District Court for the District of Connecticut held that Hoskins could not be held criminally liable for conspiring to violate or for aiding and abetting a violation of the FCPA unless he acted as an agent of a “domestic concern” or while physically present in the United States. The government had argued that Hoskins’ “absurd interpretation of the FCPA would punish the foreign national underlings, yet insulate from culpability the top echelons of the foreign nationals who, like Hoskins, use their U.S. partners to violate the FCPA.”  But after consideration of the text, structure, and legislative history of the FCPA, the District Court concluded that “Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability.”

Second Circuit Decision

In a 73-page decision, the Court of Appeals affirmed in part and reversed in part the District Court’s decision. Relying heavily on both its reading of the legislative history of the statute, and on a nearly 90-year old Supreme Court Mann Act case, the Second Circuit agreed with the District Court that the FCPA’s precisely defined limitations on who may be charged “do not comport with the government’s use of the complicity or conspiracy statutes.” The panel, however, reversed the District Court’s dismissal of the second object of the conspiracy, “because the government’s intention to prove that Hoskins was an agent of a domestic concern places him squarely within the terms of the statute and takes that provision outside [the Court’s] analysis on the other counts.”

The central question posed on appeal was whether a person can be guilty as an accomplice or as a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal.  In answering this question in the negative, the Court of Appeals examined the affirmative-legislative-policy exemption, which applies in situations where there is an affirmative legislative intent to exclude certain persons from liability under a criminal statute. The Court of Appeals explained that, “in certain cases it is clear from the structure of a legislative scheme that the lawmaker must have intended that accomplice liability not extend to certain persons whose conduct might otherwise fall within the general common law or statutory definition of complicity.” 

The Court of Appeals relied on Gebardi v. United States, 287 U.S. 112 (1932) and United States v. Amen, 831 F.2d 373 (2d Cir. 1987). Gebardi, a Mann Act case, established that, where Congress excludes–explicitly or implicitly–a class of individuals from liability under a criminal statute, the government cannot prosecute those same individuals by relying on accomplice liability. In Amen, the Court of Appeals applied Gerbardi’s reasoning to the continuing criminal enterprise statute. Accepting the teachings of Gerbardi and Amen that accomplice liability will not stand when Congress demonstrates an affirmative legislative policy to leave some type of participant in a criminal transaction unpunished, the Court in Hoskins looked to the text of the FCPA and its legislative history to determine if such a policy exists with respect to the FCPA. 

The Court of Appeals found that the text of the FCPA contains no provision contemplating liability to persons such as the Defendant–nonresident foreign nationals, acting outside the territory of the United States, who lack an agency relationship with an American person, and who are not officers, directors, employees, or stockholders of an American company.  Rather, the Court found, the FCPA lays out the specific categories of persons who may be held liable under the statute, namely: 

  1. American citizens, nationals, and residents, regardless of whether they violate the FCPA domestically or abroad;
  2. most American companies, regardless of whether they violate the FCPA domestically or abroad;
  3. agents, employees, officers, directors, and shareholders of most American companies, when they act on the company’s behalf, regardless of whether they violate the FCPA domestically or abroad; and
  4. foreign persons (including foreign nationals and most foreign companies) not within any of the aforementioned categories who violate the FCPA while present in the United States.

The Court similarly found that the legislative history of the FCPA indicates that Congress demonstrated an affirmative decision to exclude from liability the class of persons in which the Defendant falls. Therefore, the Court of Appeals reasoned, the government may not override that policy using conspiracy or aiding and abetting liability. 

The panel went on to explain that, even if the Court was not convinced that Congress had demonstrated such an affirmative legislative policy, it would still rule in favor of the Defendant because of the presumption against extraterritorial application and the government’s failure to establish a clearly expressed congressional intent to broaden the extraterritorial reach of the FCPA. 

In a concurring opinion, Judge Lynch explained why he regarded this as “a close and difficult case.”  Although Judge Lynch joined the opinion for the Court and agreed that the FCPA only specifies particular classes of people who can be held liable under the statute, he explained that it makes little sense to allow the prosecution of foreign affiliates of American entities “who are minor cogs in the crime, while immunizing foreign affiliates who control or induce such violations from a high perch in a foreign parent company.”  He called on Congress to revisit the FCPA with this case in mind and expressed his opinion that such a result seems “questionable as a matter of policy” and “perverse . . . and one that is unlikely to have been specifically anticipated or intended by Congress.”

Key Takeaways

The panel’s ruling, which relies on the interpretation of legislative history and an antiquated Mann Act case, may not be the final word on this issue. The Defendant in the case also is still subject to FCPA liability as an “agent” of the U.S. company. Still, the 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.  But, even with the Hoskins decision, the FCPA’s reach is extremely broad and can include foreign nationals who do not even visit the United States.  Companies and individuals must continue to exercise caution.