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Second Circuit Decision Limits FCPA Jurisdiction as to Foreign Nationals Outside the United States8月 28, 2018
In a long-awaited decision, the Second Circuit in United States v. Hoskins, No. 16-1010 (2d Cir. Aug. 24, 2018), limited the extraterritorial reach of the Foreign Corrupt Practices Act (FCPA). The court held that a foreign national who is not an employee or agent of a US company and who is acting outside the US may not be liable for conspiring to violate or aiding and abetting a violation of the FCPA. We had anticipated a significant ruling in this case, particularly as to extraterritorial jurisdiction, and the Second Circuit’s opinion explores the limits of aggressive FCPA enforcement overseas. The decision rejects the government’s long-held position about the scope of the FCPA and is likely to have substantial ramifications for some existing FCPA cases and future enforcement actions. The decision is likely to draw additional scrutiny of the government’s aggressive positions concerning the scope of agency principles under the FCPA.
The Alleged Conduct and Charges
Federal prosecutors charged the defendant and others with a scheme to bribe Indonesian officials to obtain a government contract in Indonesia. Defendant was a UK citizen employed by a French subsidiary of a French multinational company and never set foot in the US during the alleged scheme. Prosecutors alleged that a US subsidiary of the French company and others hired consultants to bribe the Indonesian officials. Despite defendant’s lack of ties to the US, prosecutors alleged that he aided and directed the US subsidiary in selecting the consultants and authorizing payments to them. Prosecutors also alleged that payments went through the US, and executives of the US subsidiary held meetings on American soil.
Prosecutors alleged that the defendant’s conduct was within the scope of the FCPA because (1) he conspired with and aided and abetted US nationals in violating the FCPA, and (2) he was an agent of the US subsidiary.
The District Court’s Grant of the Motion to Dismiss
Defendant moved to dismiss the conspiracy and substantive FCPA charges arguing that, because he did not fall into one of the specific categories of persons the FCPA covers, the government could not charge around such limitations by using principles of conspiracy and aiding and abetting. The FCPA lists specific categories of individuals covered by the statute, namely, companies issuing US securities, US companies and individuals (including citizens, nationals, or residents), their agents, employees, and similar associated persons, and foreign persons acting on American soil. Defendant contended that because he did not fit into any of these categories himself, the government could not simply charge around this problem by alleging that he conspired with or aided and abetted others covered directly by the statute.
The district court agreed and dismissed the conspiracy charge. The court also agreed that defendant could be convicted for aiding and abetting the substantive FCPA charges only if the government proved he was within one of the FCPA’s categories of covered individuals (the court left intact money laundering charges). The government appealed.
The Second Circuit’s Ruling
The Second Circuit affirmed the district court’s ruling as to the first object of the conspiracy charge (that is, for a US company or person to pay bribes), as well as the defense’s aiding and abetting arguments. The court began by noting that, as a general matter, conspiracy and complicity theories of liability do apply to persons who cannot directly commit the substantive crime, for example, a getaway driver who does not enter a bank cannot commit bank robbery directly, but may be charged with conspiring to commit the crime or assisting its commission. However, the court explained that this rule may not apply where Congress has made clear its intent not to extend liability beyond the underlying substantive statute, a so-called “affirmative legislative policy” exception to the general rule. See Gebardi v. United States, 287 U.S. 112 (1932). For example, in the case of statutory rape, a youthful participant who consented to the act cannot be prosecuted for that act and similarly cannot be prosecuted for conspiracy to commit statutory rape.
Based primarily on the structure and legislative history of the FCPA and its subsequent amendments, the Second Circuit discerned that Congress showed an “affirmative policy . . . to leave foreign nationals outside the FCPA when they do not act as agents, employees, directors, officers, or shareholders of an American issuer or domestic concern, and when they operate outside United States territory.” Alternatively, the court also supported its ruling by determining, based on the Supreme Court’s recent decision in RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090 (2016), that prosecutors had failed to rebut the presumption against extraterritorial application of US law. In his concurrence in what he called a “close and difficult case,” Judge Lynch made it clear that he supported the majority opinion only insofar as it rested on a presumption against extraterritoriality combined with Congressional concern over the extraterritorial application of the FCPA statute in particular.
However, the court reversed the district court’s dismissal as to the second object of the FCPA conspiracy (that is, for a foreign person to take acts in furtherance of bribes while in the US) because, in that object, the government alleged the defendant acted as an “agent” of the US subsidiary, and therefore his conduct fell within one of the categories enumerated in the statute.
Significance of the Case and Future Proceedings in the Case
Although the defendant did not secure dismissal of the entire case—he still faces the conspiracy charge alleging that he acted as an agent of the US subsidiary and also related money laundering charges not addressed in this appeal—the case is significant because it limits the types of persons covered by the FCPA. Even today, the Department of Justice’s FCPA website states that, “The anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.” (emphasis added.) The Second Circuit’s decision, however, rejects that view. Under the Second Circuit’s holding, merely causing someone else to commit an FCPA violation is not sufficient; rather, the person must be in one of the categories enumerated in the statute, and a foreign employee of a foreign company acting outside the US does not fall into any such category.
The Department of Justice’s recent FCPA Corporate Enforcement Policy highlights one aspect of corporate cooperation as including “all facts related to involvement in the criminal activity by the company’s officers, employees, or agents,” and prosecution of those individuals is clearly a core part of DOJ’s enforcement program. The Second Circuit’s decision helps to set the parameters of prosecuting non-US individuals when they do not enter the US. Indeed, the decision may give non-US companies ammunition to argue in some cases that the activities of certain foreign employees are not relevant to the government’s investigation, since they arguably cannot be prosecuted in the US.
The government has not decided whether to seek rehearing en banc or seek certiorari in the Supreme Court, but it is likely prosecutors are seriously considering their appellate options. The concurrence by Judge Lynch noted that discerning Congress’ intent to exempt a class of persons from a statute is “a tricky business,” and stated it was “not at all clear” that defendant should receive the benefit of caselaw discussing when certain classes of individual should be excluded from the scope of a criminal statute. But Judge Lynch clearly agreed with the majority’s alternative holding, which rested on concerns as to extraterritorial application of the statute. The absence of a dissenting opinion from such an experienced panel may make it difficult for the government to convince the Solicitor General to authorize an appeal. Indeed, in United States v. Allen, 864 F.3d 63 (2d Cir. 2017), a case involving the same prosecutorial office, an almost identical panel of judges from the Second Circuit, and the prosecution of a foreign national in a closely watched white-collar case, the government sought rehearing en banc, but did not seek certiorari.
For the time being, Hoskins represents what could be an important limit on DOJ’s extraterritorial jurisdictional power. Still, it would not be surprising to see more developments arising from this groundbreaking case.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ronald Cheng, an O'Melveny partner licensed to practice law in California and Hong Kong, Steven J. Olson, an O'Melveny partner licensed to practice law in California, Mark A. Racanelli, an O'Melveny partner licensed to practice law in Maryland and New York, Sharon M. Bunzel, an O'Melveny partner licensed to practice law in California, Jeremy Maltby, an O'Melveny partner licensed to practice in California, the District of Columbia and New York, Greta Lichtenbaum, an O'Melveny partner licensed to practice in the District of Columbia, and Benjamin Singer, an O'Melveny partner licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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