District Court Limits Reach of the FCPA and Sheds Light on What It Means to Be an Agent of a US Subsidiary

On February 26, 2020, a federal judge in Connecticut overturned a jury's finding that Lawrence Hoskins, a former Alstom SA (Alstom) executive, had violated the US Foreign Corrupt Practices Act (FCPA) while acting as an "agent" of Alstom's US subsidiary.¹ The court's decision in this long-running and much-watched case focused on whether the Department of Justice (DOJ) had established beyond a reasonable doubt that the US subsidiary "control[led]" Hoskins' "actions in a manner consistent with agency relationships."² While highly fact-specific, the court's analysis provides guidance on the contours of agency relationships and the evidence required to prove that someone is an agent in the context of multinational corporations and their operations. The decision, which adds to the small field of FCPA jurisprudence, also reinforces the limitations of the DOJ's jurisdictional reach over foreign nationals and entities.

Still, the decision's significance for FCPA enforcement more broadly should not be overblown—indeed, Alstom's $772 million criminal penalty, its consortium partner's $88 million criminal penalty, and the convictions of five other individual defendants in this case demonstrate the continued risks of using third parties to help do business overseas.

Background

Hoskins, a British citizen, was employed by Alstom UK Limited, a British subsidiary of the French power and transportation company Alstom. He served as the Senior Vice President for Asia of Alstom's International Network department, which supported Alstom subsidiaries worldwide in their efforts to obtain contracts.

According to US prosecutors, between 2002 and 2009, Hoskins participated in a corrupt scheme to secure construction projects in Indonesia by hiring consultants who bribed Indonesian officials to help ensure the projects went to Alstom. The DOJ alleged that Hoskins personally participated in and approved the hiring of these consultants but did not allege that he took any relevant actions on US soil.

In 2013, Hoskins was charged with, among other things, substantive violations of the FCPA and conspiracy to violate the FCPA. Hoskins moved to dismiss the FCPA charges, arguing that because he was a foreign national employed by a foreign company that did not issue securities in the United States, and because his alleged conduct took place outside US territory, he did not fall within the FCPA's jurisdictional reach. In 2015, the district court dismissed the FCPA conspiracy charge and also denied DOJ's request to proceed on an aiding and abetting theory, agreeing that Hoskins could not be charged with these ancillary crimes if he could not otherwise be charged with violating the FCPA.

DOJ appealed, and in 2018 the US Court of Appeals for the Second Circuit upheld the district court's ruling that Hoskins could not be charged with conspiring to violate or aiding and abetting a violation of the FCPA unless he could be charged with a substantive violation of the FCPA.³ However, the Second Circuit also found that Hoskins still could be liable under the FCPA if the government could demonstrate that he was an "agent" of a "domestic concern" such as a company with a principal place of business in the United States or organized under the laws of a US state.⁴

DOJ then charged Hoskins with substantive violations of the FCPA alleging that he had acted as an agent of Alstom's US subsidiary, Alstom Power Inc. (US Subsidiary). On November 8, 2019, a jury convicted Hoskins of six counts of violating the FCPA, three counts of money laundering and two counts of conspiracy.

Hoskins filed a motion for judgment of acquittal under Federal Rule of Criminal Procedure 29(c) or, in the alternative, for a new trial under Rule 33. On February 26, 2020, the trial court denied Hoskins's motions with respect to the money laundering-related charges but granted his motion for judgment of acquittal as to the charges that he violated the FCPA, finding that the government had failed to prove beyond a reasonable doubt that Hoskins was acting as the US Subsidiary's agent when he allegedly engaged in the corrupt acts.

The Government Did Not Present Sufficient Evidence of an Agency Relationship

To determine whether Hoskins was the US Subsidiary's agent, the trial court applied the common law of agency, noting that "[a]gency analysis is 'highly-factual and often nuanced.'"⁵ The court explained that "[a]n essential element of agency is the principal's right to control the agent's actions."⁶ The court elaborated that the "principal's right of control presupposes that the principal retains the capacity throughout the relationship to assess the agent's performance, provide instructions to the agent, and terminate the agency relationship by revoking the agent's authority."⁷

Applying these principles, the court determined that no reasonable jury could have concluded that Hoskins was an agent of the US Subsidiary. In particular, the court noted the absence of any evidence that:

• The US Subsidiary had a right of interim control over Hoskins' actions, as opposed to setting the overall goals of who to retain as consultants, how much to pay them, and additional terms of the consultancy agreements;⁸
• The US Subsidiary had the right to terminate its relationship with Hoskins, to terminate Hoskins' authority to participate in the hiring of consultants for the Indonesia project, or to "fire, reassign, demote, or impact the compensation of Mr. Hoskins;"⁹ or
• Hoskins agreed or understood that the US Subsidiary would control his actions on the Indonesia project.¹⁰

Because Hoskins could not be convicted of the FCPA violations charged unless he was an agent of a domestic concern, the court concluded that the evidence at trial could not support his conviction on the FCPA counts.

Takeaways for Individuals

Although not binding on other courts, the district court's decision represents a significant defeat for the government's expansive theory of agent liability. Combined with the prior rulings against the DOJ in both the district court and Second Circuit, this decision may be an indication that courts share the defense bar's concerns regarding overly expansive theories of liability under the FCPA. The high evidentiary bar set by Hoskins for establishing an agency relationship may cause prosecutors investigating similar cases to devote more time and resources to developing evidence of control of foreign nationals by US entities or persons in order to pursue an agency theory of liability.

But whether the Hoskins case will curtail the DOJ's enforcement of the FCPA remains to be seen. Shortly after the jury's verdict convicting Hoskins (though before the court's most recent ruling overturning that conviction), Assistant Attorney General Brian Benczkowski commented that the DOJ will not seek to expand the scope of agency liability, but went on to say:

I want to be very clear on one important point: if the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the Department likely would strongly favor prosecution in those instances.¹¹

In addition, the Second Circuit's decision rejecting DOJ's conspiracy and aiding and abetting theories of liability under the FCPA has itself been challenged. A district court judge in Illinois last year expressly disagreed with the Second Circuit's holding in Hoskins, setting up a potential circuit split if the case is affirmed on appeal by the Seventh Circuit.In that case, the court denied a motion to dismiss charges that Dmitry Firtash, a Ukrainian citizen, and Andras Knopp, a Hungarian citizen, conspired to violate the FCPA, among other federal criminal laws, in relation to a mining project in India. The court held that, even though these foreign defendants were not subject to liability for their conduct abroad under the substantive provisions of the FCPA—because the indictment did not allege that they were agents of a domestic concern or issuer or that they committed a specified illegal act in the United States—the defendants nevertheless could face secondary liability for conspiring to violate, or for aiding and abetting, a substantive violation of the FCPA.

Foreign individuals who are involved in schemes to bribe foreign officials for business should be aware that the long arm of US law—whether the FCPA or another statute—still can reach their misconduct. After all, Hoskins' money laundering convictions still stand. Five other individuals have pleaded guilty in the case, and three more were charged last month with violating or conspiring to violate the FCPA and money laundering statutes.¹² Moreover, other countries—including Alstom's home country of France—have been increasing their anti-corruption enforcement efforts in recent years and may step in to fill any jurisdictional voids left by the FCPA.

Takeaways for Corporations

Notwithstanding Hoskins' recent success in getting FCPA charges thrown out, the Alstom case serves as a reminder that foreign companies can face significant penalties under the FCPA for their conduct overseas, including the conduct of third-party "consultants" engaged to help win business. Alstom, an "issuer" of securities in the United States, pleaded guilty to violating the accounting provisions of the FCPA by falsifying its books and records and failing to implement adequate internal controls to prevent bribe payments, and agreed to pay a fine of $772 million. Alstom's consortium partner, Marubeni Corporation, which admitted to actions taken in furtherance of the corrupt scheme on US soil, also pleaded guilty to FCPA violations, as well as a conspiracy to violate the FCPA, agreeing to a fine of $88 million. Both Alstom and Marubeni admitted that they lacked effective compliance and ethics programs at the time of the relevant conduct.¹³

DOJ has issued a number of guidance documents in the last two years clarifying its expectations of how companies should design their compliance programs, all of which emphasize the importance of due diligence, contractual precautions, and monitoring for third parties.¹⁴ Implemented properly, these are tools that could potentially have helped avoid or mitigate the types of issues found in this case.¹⁵