31 August 2018

Cir Rules on Scope of FCPA Jurisdiction

This article was written by Meg Utterback(Partner).

Client Alert 

The US Second Circuit rules that non-US individuals and companies are not subject to the US Foreign Corrupt Practices Act if they are not employees or agents of a US company and if they do not commit a relevant act on United States territory. 

Under a recent ruling from the United States Court of Appeals for the Second Circuit, a nonresident foreign national, acting entirely outside the United States, and who is not an employee or agent of a US company, may not be liable under the US Foreign Corrupt Practices Act (“FCPA”) based on a conspiracy or complicity theory.  Nonresident foreign nationals would include, among other things, Chinese companies and Chinese individuals who do not reside in the United States.

The case at issue, United States v. Hoskins, concerned Lawrence Hoskins, a UK citizen who worked for a UK subsidiary of the French company Alstom S.A., which provides power and transportation services.  The government charged Mr. Hoskins with being part of a scheme to bribe Indonesian government officials to secure a USD 118 million contract for a US subsidiary of Alstom, Alstom Power, Inc.  Hoskins never worked for the US subsidiary in a direct capacity, and never traveled to the United States while the alleged bribery scheme was ongoing.  But he was allegedly one of the people who selected and authorized payments to certain consultants, knowing that some of the payments would be used to bribe government officials.  In addition, Hoskins called and emailed US-based co-conspirators while they were in the United States.

On the basis of these facts, the government alleged that Hoskins was an agent of Alstom’s US subsidiary and that he aided and abetted or conspired with the US subsidiary.  The government charged Hoskins with, among other things, conspiring to violate the provisions of the FCPA targeting US persons and their agents (15 USC section 78dd-2) and non-US persons in the United States when violating the FCPA (15 USC section 78dd-3). 

On appeal, the Second Circuit assumed that Hoskins was not an employee or agent of the US subsidiary and therefore did not squarely fall under the jurisdiction of the FCPA.  This assumption allowed the Court to frame the question on appeal as “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?

The Second Circuit began its analysis by noting that, while there is a general rule that accomplice and conspiracy liability applies to criminal conduct, there is an exception when Congress demonstrates “an affirmative legislative policy to leave some type of participant in a criminal transaction unpunished.”  The Court then reviewed the FCPA’s text, structure, and legislative history, and found that the FCPA applied to the following categories of persons:

  • US citizens, nationals, and residents, regardless of whether they violate the FCPA within or outside the United States;
  • most US companies (US issuers and businesses organized under state or federal law or having principal places of business in the United States), regardless of whether they violate the FCPA within or outside the United States;
  • agents, employees, officers, directors, and shareholders of most US companies, when they act on the company’s behalf, regardless of whether they violate the FCPA within or outside the United States;
  • foreign persons (including foreign nationals and most foreign companies) not within any of the categories above who violate the FCPA while present in the territory of the United States.

The Court concluded that “the carefully tailored text of the statute, 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.

While the Court held that Hoskins cannot be held liable under the FCPA if he is not in the categories of persons directly covered by the statute, it affirmed that Hoskins could be liable as an agent of Alstom’s US subsidiary, as this category of persons is covered by the statute.

The Second Circuit dealt with an interlocutory appeal and so the government will still prosecute Hoskins for the remaining counts, which include the argument that Hoskins was an agent of the US subsidiary. The government may also elect to seek review of the Second Circuit’s ruling by the US Supreme Court, if the government feels that extra-territorial jurisdiction over foreign co-conspirators is an important tool for FCPA enforcement internationally.

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