On August 12, 2022, the Court of Appeals for the Second Circuit issued a landmark ruling regarding the scope of application of the Foreign Corrupt Practices Act (FCPA) for non-US citizens employed by foreign affiliates of US companies. In particular, this decision, the United States v. Hoskins, —F.4th—, 2022 WL 330357 (2d Cir. 12 August 2022) (Hoskins II),[1] discusses the circumstances under which these individuals — who would be beyond the reach of the FCPA — are liable as an “agent” of U.S. entities.
In the end, the divided panel held that the defendant—an executive at a foreign subsidiary with a US partner—was not an agent of a US entity, despite the defendant’s collaboration with US personnel in arranging the bribe. This decision offers guidance in determining FCPA applications for pure foreign actors, which US companies operating overseas should consider going forward. In particular, the decision shows that the formality of the organizational structure will play an important role in determining the application of the FCPA abroad.
The FCPA
As a background, the FCPA prohibits individuals and entities from bribing foreign government officials. In order to avoid interference with foreign jurisdictions and to provide notice to potential defendants, the FCPA limits its scope to four categories of individuals and entities with whom the United States each has a relationship, namely, (1) foreigners who have committed the offense while in the United States. ; (2) US citizens, citizens and residents; (3) companies that have issued publicly traded securities in the United States or have reporting obligations under the Securities Exchange Act; and (4) companies that are regulated by law, or with their principal place of business in, the United States. 15 U.S.C. 78dd-1, 778d-2. As relevant here, for these last two categories, the FCPA extends not only to US companies and US issuers, but also to their officers, directors, employees, agents, and shareholders acting on behalf of the company.
Most of these categories have clear definitions. But prosecutors have used ambiguity in the term “agent” (US company and US publisher), which is not defined anywhere in the FCPA, as a basis for extending the law’s reach overseas. Read also : Florida Tech students push to restore some college sports. The scope of this term is a central question in Hoskins II, which the Second Circuit discussed in its recent decision.
Factual Background
Hoskins II involves a scheme by a subsidiary of Alstom S.A., a French energy company, to bribe Indonesian government officials into awarding Alstom a $118 million electricity contract. Employees at Alstom’s US subsidiary, Alstom Power Inc. This may interest you : 4 ways to overthrow Roe affect New England politics. (API), orchestrated the scheme by paying two consultants in Indonesia to execute bribes. Personnel at other Alstom affiliates, including its subsidiary in France (Alstom Resources Management S.A.), facilitate the API scheme.
Lawrence Hoskins, the defendant herein, is a British citizen living in France who was employed by the British subsidiary Alstom but served as an executive in its French subsidiary for the relevant period of time. At the French subsidiary, Hoskins serves as a senior manager in the subsidiary’s International Networks department, where he provides various services to Alstom’s global affiliates — including APIs — at their request.
Although there is no formal working relationship between Hoskins and API, the government argues that Hoskins is an API agent because it cooperates with API personnel in arranging bribes. To that end, the government provided evidence that Hoskins participated both in selecting the consultants who made bribes and in negotiating and finalizing their contracts on behalf of API. In particular, evidence at trial showed that (1) API personnel worked closely with Hoskins in selecting consultants and directed Hoskins to confirm the selection with Alstom regional leaders; (2) after API personnel changed their minds and supported two new consultants, API and Hoskins personnel attended a face-to-face meeting with the consultants where participants confirmed the terms of each consultant’s agreement; (3) after this meeting, the API personnel directed Hoskins to finalize an agreement with the two consultants, which was carried out by Hoskins’ own personnel; and (4) Hoskins proposes new requirements for a single consultant agreement, and then re-communicates those requirements to the consultant after obtaining API approval to make changes. The API then pays the consultants, and they pay the bribes.
The jury convicted Hoskins of all seven FCPA and four related charges. After the verdict was entered, the district court granted Hoskins’ motion for acquittal on the grounds that the government failed to provide sufficient evidence legally on agency matters. The government appealed (and Hoskins appealed on grounds that are irrelevant here), leading to the recent Second Circuit decision.
Majority Opinion
Initially, the majority — consisting of Judges Rosemary S. Pooler and Jon O. Newman — defined the term “agent” in the FCPA by reference to common law, which neither party disputed. See the article : Conviction and Sentencing of US Citizen Brittney Griner in Russia – United States Department of State.. Based on this standard, the court explained, “the three elements required for an agency relationship are (1) the principal’s manifestation that the agent will act for him; (2) acceptance by agents of business actors; and (3) understanding between the parties that the principal will control the business.” Hoskins II, at *5 (citing In re Trib. Co. Fraudulent Conv. Litig., 946 F.3d 66, 79 (2d Cir. 2019)).
By applying this standard, the court emphasized two features of Hoskins’ relationship with the API that overwhelm the agency: the agency’s lack of “authority to act on behalf of the API” and the API’s inability to “revoke the authority that should have been granted to Hoskins, or even do anything to control Hoskins’ actions.” Indonesian. at *6.
In relation to Hoskins’ authority to act on behalf of API, the court affirmed that Hoskins could not bind API to a contract with a consultant. By contrast, in the view of the majority, API personnel negotiated the terms of the contract, with Hoskins being nothing more than an “envoy” on their behalf. Indonesian.
Regarding API’s ability to control Hoskins, the court explained that “[API personnel] do not employ Hoskins, do not have the ability to fire Hoskins, and do not have any voting rights in Hoskins compensation.” Indonesian. In reaching this conclusion, the court noted that the organizational chart presented at the trial showed Hoskins to be within the “parallel work structure[]” of the API, with no reporting lines – or other formal relationships – linking them. Indonesian.
Dissenting Opinion
Judge Raymond J. Lohier Jr. has a different opinion. According to him, the majority erred in asking whether there was an element of agency between API and Hoskins “as a general matter”, rather than narrowing the analysis down to just “the specific behavior in question.” Indonesian. at *13 (Lohier, J., partially agree and partially disagree). The mistake, Judge Lohier said, led the majority to prioritize the formalities of organizational structure over reality “on the ground.” Indonesian. at *14.
Applying a more narrow analysis of his specific behavior, Judge Lohier concluded that Hoskins was an API agent for the purpose of regulating bribes. Based on this analysis, Judge Lohier explained, the API’s inability to fire Hoskins — who played a key role in the majority’s reasoning — was not substantial; the government only needed to show that API could “end [Hoskins’] involvement” in the scheme “at least partially”, which API did despite Hoskins’ initial selection of consultants. Indonesian. And Hoskins had the authority to act on behalf of the API, Judge Lohier said, because Hoskins performed “target agent” actions, such as communicating with consultants at the direction of API personnel. Indonesian. at *14.
Takeaways
Hoskins II shows, at least, that agency relationships under the FCPA require more than collaboration—even when foreign actors receive instructions from US personnel and take action to their advantage and with their knowledge. The decision directs courts in the Second Circuit to evaluate the agency based on the formal aspects of the U.S. entity’s relationship with (and control over) foreign actors — including organizational structure, reporting lines, and powers to fire actors as a matter of generality. Similarly, the decision instructs courts to consider formal criteria, such as the power to bind US entities to contracts or other final decisions, in determining the scope of a foreign actor’s authority to act on behalf of US entities.
[1] This decision marks the Second Circuit’s second intervention in the Hoskins case. Prior to the trial, the government put forward the theory that Hoskins was responsible as an accomplice or conspirator of Alstom Power Inc. and its personnel (which are undoubtedly subject to the law). The district court rejected Hoskins’ motion to reject the tally based on this theory, but the Second Circuit — on an interim appeal — reversed on the grounds that a person cannot be “guilty as an accomplice or co-conspirator for an FCPA crime that he or she is unable to commit as a perpetrator[.]” United States v. Hoskins, 902 F.3d 69, 76 (2d Cir. 2018) (Hoskins I). In reaching that decision, however, the Second Circuit allowed the government to continue the theory at issue here—namely, that Hoskins was responsible as an agent of Alstom Power Inc., on which the final decision was based.
