Agent Zero: Second Circuit (Again) Limits Criminal Liability in Long-Running Hoskins Case

It’s a rare day when the Feds lose a criminal trial. And it’s a rarer day when the Feds lose an appeal. It’s even rarer when the Feds lose their post-trial appeal—especially after having lost an earlier interlocutory appeal in the very same case.

That just happened. On August 12, 2022, the US Court of Appeals for the Second Circuit affirmed the acquittal of Lawrence Hoskins, a former Alstom executive in Europe, for violations of the US Foreign Corrupt Practices Act (FCPA).¹ After closely examining the facts, the court concluded, as a matter of law, that Hoskins was not an agent of Alstom’s US subsidiary and therefore not subject to the FCPA. This marks the second time that the Circuit has sided against the government on an FCPA issue in what has become a nearly decade-long prosecution over conduct that dates back to 2002.

Although Hoskins ostensibly is a case about the FCPA, we think it actually carries a much broader significance. Hoskins focused on the common-law definition of agency and could have implications for corporate criminal liability under the doctrine of respondeat superior. As a practical matter, Hoskins has the potential to rein in the ability of prosecutors, and perhaps even civil plaintiffs, to hold corporations liable for the acts of purported agents in a variety of contexts. Corporations, defense lawyers, plaintiffs’ lawyers and, of course, prosecutors themselves, all should take note.

Background

As detailed in the Second Circuit’s opinion, Lawrence Hoskins, a UK citizen, worked in Paris for a UK subsidiary of Alstom S.A., a global power and transportation company. He supported various Alstom operations around the world, including the work of a US subsidiary called Alstom Power, Inc. (API). In 2013, US prosecutors charged Hoskins in the District of Connecticut with FCPA, money laundering, and conspiracy offenses for his alleged role in a scheme to bribe Indonesian officials to secure a $118 million power contract with the Indonesian government for Alstom and its partners.

The case presented a jurisdictional challenge for the prosecution team. As the Second Circuit observed, “[b]ecause Hoskins is not an American citizen, was not employed by the American subsidiary, and did not enter the United States while allegedly working on the scheme, he falls outside the category of persons directly covered by the FCPA.”² Originally, the government contended that Hoskins was liable under the FCPA as a co-conspirator or accomplice. The District Court and the Second Circuit both rejected this theory as a basis for FCPA liability.³ The government “then revised its prosecutorial theory, arguing Hoskins’s work for [an] American subsidiary rendered him ‘an agent’ of a ‘domestic concern’—a category of persons squarely within the FCPA’s terms.”⁴ In 2019, a jury found Hoskins guilty of FCPA, money laundering, and conspiracy violations, but the District Court granted Hoskins’ post-trial motion for acquittal on the FCPA-related counts. The government appealed.

The Second Circuit's Decision on Agency

The Second Circuit agreed with the trial court that Hoskins’ “support” for the US subsidiary was not enough to make him the subsidiary’s agent. Applying the “common law meaning of agency” to the complex facts, the Second Circuit concluded that “Hoskins and API’s relationship lacks key elements of agency, such as any indication that Hoskins had any authority to act on API’s behalf, and whether API could ‘revoke’ any authority it purportedly gave to Hoskins, or even do anything to control Hoskins’s actions.”⁵ Although the US subsidiary directed several aspects of the alleged bribery scheme—and Hoskins’ actions in furtherance of the scheme “were all subject to the decision-making” of API executives—those API executives could not hire, fire, or set compensation for him. This lack of control proved fatal to the government’s theory of FCPA jurisdiction, which depended on an agency relationship between Hoskins and a “domestic concern.”⁶

In a partial dissent, Judge Lohier also took a hard look at the facts underlying the government’s agency theory. He framed the agency question differently, however, focusing not on the overall relationship between Hoskins and the US subsidiary, but rather on the “targeted agency” of the particular project at issue. According to Judge Lohier, “the Government was not required to show that [the US subsidiary] could cut Hoskins out of the scheme entirely,” but only that the US subsidiary “could terminate his involvement—and thus revoke his authority—at least in part.”⁷ Judge Lohier also noted that the majority’s decision could create perverse policy incentives, since Hoskins would escape liability under the FCPA, despite the critical role he allegedly played in the bribery scheme. As a result, the dissent cautioned, “US companies will be motivated to organize themselves to avoid exercising control over the employees of foreign-affiliated companies who engage in bribery overseas.”⁸

Takeaways

In a narrow and immediate sense, the Hoskins case has ramifications for the ability of the US government to bring FCPA charges against foreign nationals acting outside US borders. But the actual impact on individual FCPA liability may be relatively modest. Not all courts agree with the Second Circuit’s strictures on conspiracy and accomplice liability under the FCPA.⁹ And prosecutors often have other tools to reach foreign defendants in international corruption cases, as evidenced by the conviction and 15-month prison sentence for money laundering that Lawrence Hoskins failed to shake off, despite his repeated success defeating FCPA charges.

Yet the full impact of Hoskins could prove much more significant, with the potential to reverberate well beyond the FCPA. Under the broad doctrine of respondeat superior—which in the US applies in both criminal and civil cases—an organization can be liable for conduct of its employees or agents that occurs within the scope of employment or agency, regardless of whether there is corporate ratification or involvement of corporate officers or directors.¹⁰ As white collar practitioners well know, prosecutors in corporate criminal cases often rely on agency arguments to hold corporate clients liable for a wide range of alleged criminal violations. Most corporate criminal cases end pre-indictment, with the corporation opting for a settlement through a deferred- or non-prosecution agreement, rather than challenging the government’s theories of liability and risking more damage.

The Second Circuit’s recent decision in Hoskins (as well as Judge Lohier’s observations in dissent) provides a strong reminder that, even in a world of multinational corporations, corporate form still matters. As broad as the doctrine of respondeat superior may be, it still requires that the individual whose conduct is attributed to the company be an employee or agent of the organization. Hoskins shines a bright light on the very real challenges that prosecutors (and plaintiffs) may face when trying to impose an agency relationship between an individual and a particular entity within a multinational corporate family—a dynamic that potentially strengthens the hands of corporations in negotiating the resolution of criminal enforcement actions. Going forward, prosecutors and plaintiffs lawyers should bear in mind that courts following Hoskins can and will take a hard look at fact-specific questions of agency and the doctrine of respondeat superior—whether on a motion to dismiss, on a motion for summary judgment, or even after trial—and will want to make sure that they have in hand admissible evidence supporting an agency theory before pressing their case.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.