Second Circuit Contradicts SEC/DOJ Guidance in Limiting Scope of FCPA

Featured Expert Contributor, White Collar Crime & Corporate Compliance

Brower_GregBy Gregory A. Brower, a Shareholder with Brownstein Hyatt Farber Schreck, LLP in Las Vegas, NV and Washington, DC, with Thomas J. Krysa, a Shareholder with the firm in its Denver, CO office.

In a much watched Foreign Corrupt Practices Act (FCPA) case that originated in the U.S. District Court for the District of Connecticut, the U.S. Court of Appeals for the Second Circuit recently held in U.S. v Hoskins that a foreign national who is not employed by a U.S. company cannot be guilty of violating the law as an accomplice or co-conspirator. In so ruling, the court directly contradicted a 2012 FCPA guide promulgated jointly by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).  A unanimous three-judge panel held that “the government may not expand the extraterritorial reach of the FCPA by recourse to the conspiracy and complicity statutes.”  This decision is significant because it clarifies federal regulators’ and prosecutors’ jurisdiction over nonresident foreign nationals.

Hoskins is a U.K. national and former executive of the U.K. subsidiary of Alstom, S.A., a French multinational company. The alleged bribery scheme at issue related to Alstom’s American subsidiary. The government alleged that the U.S. subsidiary and individuals associated with the parent company retained two consultants to bribe Indonesian officials to secure a $118 million power contract for the company. Even though Hoskins never worked for the U.S. subsidiary, the government alleged that while working for another of the parent company’s foreign subsidiaries, he was involved in the bribery scheme, and that several parts of the scheme occurred within the U.S.

The indictment also alleged that several meetings concerning the bribery scheme took place in the U.S. Hoskins never traveled to the U.S., a fact the U.S. did not dispute.  The indictment’s first count charged Hoskins with both conspiring to violate the FCPA as an agent for the U.S. subsidiary, and with conspiring with the company and its employees to violate the FCPA, as well as aiding and abetting the violations.

In the district court, Hoskins moved to dismiss the first count, arguing that the FCPA imposes liability on only specific categories of persons to include U.S. companies or citizens, and their employees and agents, as well as foreign persons acting within the U.S. Hoskins argued that the government could not get around that narrowly prescribed list by charging him with conspiracy or aiding and abetting. The district court agreed, explaining that where Congress chooses to exclude a class of individuals from liability under a statute, the executive may not override that intent not to prosecute that party by charging it with conspiracy to violate a statute that it could not directly violate.

The district court went on to conclude that “Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability” under the statute. Based on this analysis, the court granted Hoskins’ motion in part and denied it in part and the government appealed.

On appeal, the Second Circuit affirmed the district court’s decision as to the FCPA’s scope. The court first explained the policy reasons behind the federal complicity and conspiracy statutes. The court observed that those statutes do not cease to apply simply because they specify a particular class of people who can violate it. It also acknowledged that a person may be liable for conspiracy even though he was incapable of committing the substantive offense. However, the court noted, there is a “narrowly circumscribed” exception to this common-law principle where “it is clear from the structure of a legislative scheme that the lawmaker must have intended that accomplice liability not extend to certain persons whose conduct might otherwise fall within the general common-law or statutory definition of complicity.”

In the FCPA context, the court opined that the “carefully tailored” text of the statute, when read against the backdrop of the well-established principle that U.S. law does not apply extraterritorially without express congressional authorization, “persuades us that Congress did not intend for persons outside of the statute’s carefully delineated categories to be subject to conspiracy or complicity liability.”

Interestingly, the Second Circuit’s holding appears to directly contradict the 2012 FCPA Resource Guide issued by DOJ/SEC, which states:

Individuals and companies, including foreign nationals and companies, may also be liable for conspiring to violate the FCPA—i.e., for agreeing to commit an FCPA violation—even if they are not, or could not be, independently charged with a substantive FCPA violation.

Clearly, with its decision in Hoskins, the Second Circuit has rejected the DOJ/SEC view of the law, thus begging a few important questions going forward. Chief among these questions is whether DOJ will follow Hoskins outside the Second Circuit. If DOJ opposes the application of Hoskins in other  circuits, it risks teeing up a potential circuit split that might attract U.S. Supreme Court review, something that given the justices’ recent skepticism toward extraterritorial application of U.S. law, DOJ may not wish to face.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s