Some Preliminary Thoughts on US v. Hoskins and its Implications for FCPA Enforcement

The US Foreign Corrupt Practices Act (FCPA) is aggressively enforced but rarely litigated—most actions are brought against corporate entities that settle with the government. For that reason, any judicial opinion on the FCPA’s meaning, especially one from an appellate court, will attract a great deal of attention.

A couple weeks back, a US federal appeals court based in New York decided such a case, US v. Hoskins. The case addressed the question of whether a foreign national whose relevant conduct took place entirely outside the United States could be charged, not with violating the FCPA, but with conspiracy to violate the FCPA and/or aiding and abetting an FCPA violation. I’m a bit late to the discussion of Hoskins, which has already produced a great deal of commentary in the FCPA blogosphere (see here, here, here, here, and here). But for what it’s worth, here’s my quick summary of what the case is about, followed by some knee-jerk thoughts and observations about its significance.

Here’s a simplified version of what happened (assuming for the sake of the discussion that the US government’s allegations are true): The US subsidiary of a French corporation hired so-called “consultants”—really bagmen—to pay bribes to Indonesian government officials in order to win a contract for the US subsidiary. Although the consultants were foreign nationals, at least one was based in the US, and they received the bribe money at their US bank accounts. Additionally, several executives of the French parent held meetings, and made calls and sent emails, about the bribery scheme while in US territory. If this is all true, then the US subsidiary clearly violated the FCPA: it is a “domestic concern” that paid bribes to a foreign government official in order to obtain business. The parent company executives who helped orchestrate the bribe scheme while in the US also violated the FCPA, because even though they are not US citizens, they committed acts in furtherance of a foreign bribery scheme while in US territory. By extension, the French parent company can be vicariously liable for the FCPA violations of its employees. (As for the consultants, they likely also violated the FCPA for the same reason—though not US nationals, they engaged in acts, like receiving money intended for bribe payments, within US territory that were in furtherance of a foreign bribery scheme.)

The harder question, and the one that the appeals court addressed in Hoskins, concerns another European executive, Mr. Hoskins (an employee a UK subsidiary of the French parent, but based in France). According to the allegations, although Hoskins never entered US territory during the relevant time period, he approved the selection of the consultants and authorized the US subsidiary to hire and pay them, while knowing that these payments were actually intended as bribes to foreign government officials. I don’t know the details of how these conversations went, but just to keep things simple (and make the story more vivid), let’s imagine that Hoskins called up the CEO of the US subsidiary and said, “Corporate HQ is disappointed by your lackluster performance—you’re not earning enough for the parent. You had better win this big contract in Indonesia. But let’s be realistic, the only way to do it is to grease the right palms. I know a guy, based in the US, who can help you. Here’s his contact information. Get in touch, tell him I sent you, and deposit $1 million in his US bank account. He’ll take a cut and pass on the rest as a bribe to an Indonesian government official who can ensure you get the deal. Describe the payment in your books as for ‘consulting’ services. I’ll be in touch with the right people in the company and make sure this payment is authorized.” If that’s what happened, then boy, it sure seems like Hoskins was a key player in this scheme to violate the FCPA. But unless one can establish that Hoskins was acting as an agent of the US subsidiary (and not just of the European parent), it doesn’t seem that the FCPA’s anti-bribery provisions cover him, because he’s not a US national and none of his acts in furtherance of the bribery scheme occurred in US territory.

But the US government charged Hoskins with conspiring with the US subsidiary to violate the FCPA, and aiding and abetting that violation. In doing so, the US government relied on two important and expansive provisions of US law. The first, codified at 18 USC § 2, states that any person who “aids, abets, counsels, commands, induces, or procures” any federal crime “is punishable as a principal” (that is, as if he or she had actually committed that crime). Thus the getaway driver in a bank robbery can be charged with bank robbery, even though the driver did not personally use force or violence to seize property from the bank. The second statutory provision, codified at 18 USC § 371, deals with conspiracies to violate federal criminal law, and states that all participants in the conspiracy are guilty so long as at least one of them takes at least one overt act in furtherance of the conspiracy. So, for example, even though a statute prohibiting the import of certain goods into the US can only be directly violated by the importer, the exporter can be charged with conspiracy to violate the criminal prohibition on imports. The US government has long taken the position that it can charge individuals (both natural persons and corporations) with conspiracy to violate the FCPA, and/or with aiding and abetting (or counseling, inducing, or procuring) an FCPA violation, even if those defendants did not directly violate the FCPA or could not be charged with an FCPA violation for want of jurisdiction under the terms of the statute. So, the US government argued, even if Hoskins himself did not violate the FCPA, he aided, abetted, counseled, and induced the US subsidiary to violate the FCPA. (He may also have aided, abetted, and conspired with both the other European executives—the ones who helped further the conspiracy while in the US—and the foreign consultants for their FCPA violations.)

The appellate court rejected that position. The court agreed with the US government that it could prosecute Hoskins directly for FCPA violations if the government could prove that Hoskins was acting as an agent of the US subsidiary. (Suppose, for example, the way things really went down is that the CEO of the US subsidiary called up Hoskins and said, “We need to win this contract in Indonesia. Even though you’re technically employed by another entity, we’re all one big corporate family. Can you help us out by explaining whom we should contact and how we should proceed in order to bribe the right foreign officials?” If that’s how the conversation went, then perhaps—though it might be a stretch—Hoskins was an agent of the US subsidiary.) But, the court continued, if that’s not the case, then Hoskins can’t be charged with aiding and abetting or with conspiracy to violate the FCPA. Why? Because, according to the court, to do so would expand the FCPA’s extraterritorial reach beyond the narrowly delimited set of categories laid out in the statute. The FCPA’s anti-bribery provisions, the argument goes, explicitly authorize extraterritorial jurisdiction over US nationals, US firms, foreign firms that issue securities in the US (“US issuers”), and the officers, directors, employees, or agents of US firms and US issuers. The FCPA’s bribery prohibition applies to others–that is, to foreign firms or individuals that are not employees, officers, or agents of US firms or US issuers–if but only if that firm or individual in question does some act in furtherance of the foreign bribery scheme “while in the territory of the United States[.]” In other words, the court reasoned as follows: The FCPA discusses three classes of potential defendants: (A) US issuers and their employees/agents; (B) US domestic concerns and their employees/agents; (C) foreign firms and individuals (other than those who fall into categories A or B). The FCPA applies extraterritorially to defendants in categories A and B, but says explicitly that jurisdiction over those in category C must be territorial. The court found that the legislative history of the FCPA buttressed this conclusion, and then reasoned that to allow individuals in category C to be charged with conspiracy to violate the FCPA or abetting an FCPA violation would be to undo Congress’s careful and deliberate limitation on the scope of the FCPA’s extraterritorial reach.

I’m still puzzling over whether this is the right decision as a legal matter (as well as the separate question of whether the current Supreme Court would reach the same conclusion). As Judge Lynch noted at the outset of his concurring opinion, Hoskins is a “close and difficult case,” involving the uncertain interaction between a number of conflicting legal principles, notably how the traditionally broad sweep of the conspiracy and complicity statutes may be in tension with the restrictive limits on the extraterritorial application of federal statutes. (One of my frustrations with the spate of early commentary on Hopkins—at least what I’ve seen—is that it fails to grapple sufficiently with this hard problem, seeming to treat the decision as a straightforward judicial rebuke to DOJ overreaching without really addressing the broader legal problems created by the tension between these lines of doctrine.) I hope to do a bit more research on the legal issues and maybe write something later on that aspect of the case. But for the remainder of this post, I want to offer some off-the-cuff speculations about the broader implications of the Hoskins decision for FPCA enforcement going forward.

A few tentative thoughts:

  • First, while every appellate decision on the FCPA is significant given their rarity, I don’t think that the Hoskins holding, by itself, will have an enormous impact. My impression—and I could be wrong about this, and stand open to correction by the hard-core FCPA nerds out there—is that Hoskins is an unusual case, and that it’s not typical for the US to rely on conspiracy and/or aiding and abetting liability to go after FCPA defendants. Usually the defendants are US companies, US issuers, or their agents. And in those cases, Hoskins won’t matter.
  • Second, though, I can think of three categories of case where the Hoskins ruling might make a difference. First, the ruling might make it somewhat more difficult to go after the foreign partners or subsidiaries of US firms or US issuers. Under the US government’s theory of the case, if a US firm and a (non-issuer) foreign firm collaborate in a foreign bribery scheme, the foreign partner can be charged as a conspirator or aider/abettor. Under Hoskins, though, the foreign firm would have to be charged as an agent of the US firm, which is harder to prove. Second, though the DOJ hasn’t aggressively gone after foreign facilitators under the FCPA, its legal theory would have allowed such action in the future (provided, of course, the US could get custody over such defendants or their assets). Suppose, for instance, that the foreign “consultants” in the Hoskins case had taken all of their actions in connection with the foreign bribery scheme abroad, but had (unrelated) assets in the US (or later traveled to the US, where they could be arrested). The US government’s theory of conspiracy and complicity would appear to allow the US government to prosecute these foreign consultants for their role in facilitating FCPA violations; Hoskins, however, would seem to foreclose such prosecutions. Third, as Judge Lynch points out in his concurring opinion, the Hoskins ruling may make it harder to go after the “mastermind” of a bribery scheme if that mastermind is a foreign individual who directs other individuals and entities (including US firms or individuals) to engage in FCPA violations. For example, if a foreign firm hires a US expat living in Indonesia as a local sales rep, and instructs this US citizen to pay bribes, then the US agent but not the foreign principal can be charged under US law. Had Hoskins come out the other way, the foreign principal, though not directly liable for FCPA violations, could be charged with inducing a violation, and/or conspiring to violate, the FCPA. I’ll echo Judge Lynch’s view that as a policy matter, that latter outcome seems to make much more sense. (In the commentary on Hoskins so far, I haven’t seen anyone address whether Judge Lynch is right about this – there seems to be an impulse among some in the FCPA commentariat to celebrate any DOJ defeat without addressing whether the statute as written (assuming Hoskins was correct) creates anomalous results that Congress should fix.)
  • Third, even though the particular circumstances in Hoskins may be somewhat unusual, the case—and the broader concern articulated by Judge Lynch—underscores why the oft-repeated calls to focus on individual FCPA prosecutions rather than corporate prosecutions, though reasonable, need to be qualified. Often in FCPA cases, US or US-linked firms are vicariously liable, but the most culpable individuals are beyond the reach of US prosecutors. In those situations, the most sensible thing to do is to go after the corporate principals. As the Hoskins court put it when summarizing its interpretation of the FCPA’s legislative history, “Congress … repeatedly emphasized that out-of-reach foreign entities should not create concern because American companies would be liable for violating the Act even if they did so indirectly through such persons.” Indeed, the greater the legal or practical barriers to directly holding the most culpable individuals accountable, the more important it is to use the threat of vicarious liability for the firm to induce the firm to take optimal precautions to prevent violations by its agents and associates.
  • Fourth, and continuing on the theme of individual prosecutions, the Hoskins case may illustrate a concern I articulated a few years back: The more the DOJ pushes ahead with prosecutions of individuals, the more of these cases are likely to be litigated to judgment and appeal, and the DOJ may well lose some of those cases in ways that have adverse collateral consequences for other cases (including cases against corporations). I know some folks out there—entirely understandably—see this as a reason to encourage more litigation. After all, if the DOJ is overreaching, isn’t a good thing that the courts have the opportunity to push back? I get that, but my response is that I don’t think courts necessarily get these issues right. (I’m still not sure about Hoskins itself—again, it’s a hard case as a legal matter, and I haven’t sorted through the relevant materials yet.) Indeed, I tend to think that many federal courts are overly solicitous of white-collar defendants and insufficiently familiar with the FCPA’s role and function. (For that reason, I’m not particularly enthusiastic about the prospect of the current US Supreme Court getting its hands on any of these cases.) So, at least from the government’s perspective, much as it’s satisfying to put some bad guys behind bars, and much as doing so might placate critics who think that imposing fines on corporations rather than sending executives to jail is “chickens**t”, it might be worth proceeding with caution on individual prosecutions, especially those that involve aggressive and untested legal theories that the government also hopes to invoke in negotiating settlements with corporations.

I’m going to continue to delve into the legal materials on conspiracy, complicity, and extraterritoriality, and hopefully produce some kind of follow-up post at some point about whether Hoskins was correctly decided as a legal matter.

One thought on “Some Preliminary Thoughts on US v. Hoskins and its Implications for FCPA Enforcement

  1. Pingback: This Week in FCPA-Episode 119, the Heading to Boston edition - Compliance ReportCompliance Report

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