United States v. Hoskins

On Aug. 12, 2022, the Court of Appeals for the Second Circuit issued an important decision regarding the scope of the Foreign Corrupt Practices Act’s (FCPA) application to non-U.S. citizens who are employed by foreign affiliates of a U.S. company. Specifically, this decision, United States v. Hoskins, ---F.4th---, 2022 WL 330357 (2d Cir. Aug. 12, 2022) (Hoskins II),^[1] addressed the circumstances under which these individuals — who would otherwise fall outside the FCPA’s reach — are liable as “agents” of a U.S. entity.

Ultimately, a divided panel held that the defendant — an executive at a foreign subsidiary with a U.S. counterpart — was not an agent of the U.S. entity, notwithstanding the defendant’s collaboration with U.S. personnel in orchestrating the bribe. This decision offers guidance in determining the FCPA’s application to conduct by purely foreign actors, which U.S. companies operating overseas should consider going forward. In particular, the decision suggests that the formalities of organizational structures will play a significant role in determining the FCPA’s application abroad.

The FCPA

As background, the FCPA prohibits individuals and entities from bribing foreign government officials. To avoid interference with foreign jurisdictions and to afford notice to potential defendants, the FCPA limits its reach to four categories of individuals and entities that each have a nexus to the United States, namely, (1) foreign persons who have committed violations while in the United States; (2) U.S. citizens, nationals 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 organized under the laws of, or with their principal place of business in, the United States. 15 U.S.C. §§ 78dd-1, 778d-2. As relevant here, for these latter two categories, the FCPA extends not only to U.S. companies and U.S. issuers, but also to their officers, directors, employees, agents and stockholders acting on the company’s behalf.

Most of these categories have clear definitions. But prosecutors have seized on the ambiguity in the term “agents” (of U.S. companies and U.S. issuers), which is nowhere defined in the FCPA, as a basis to expand the statute’s reach abroad. The scope of this term was the central question in Hoskins II, which the Second Circuit addressed in its recent decision.

Factual Background

Hoskins II involved a scheme by subsidiaries of Alstom S.A., a French energy company, to bribe Indonesian government officials into giving Alstom a $118 million power contract. Employees at Alstom’s U.S. subsidiary, Alstom Power Inc. (API), orchestrated the scheme by paying two consultants in Indonesia to execute the bribe. Personnel at other Alstom affiliates, including its French subsidiary (Alstom Resources Management S.A.), facilitated API’s scheme.

Lawrence Hoskins, the defendant here, was a U.K. citizen residing in France who was employed by Alstom’s U.K. subsidiary but served as an executive at its French subsidiary during the relevant time period. At the French subsidiary, Hoskins served as a senior manager in the subsidiary’s International Network department, where he provided various services for Alstom’s global affiliates — including API — at their request.

Notwithstanding the absence of a formal employment relationship between Hoskins and API, the government argued that Hoskins was an agent of API because he collaborated with API personnel in orchestrating the bribe. To that end, the government presented evidence that Hoskins participated in both selecting the consultants who executed the bribes and in negotiating and finalizing their contracts on API’s behalf. Specifically, the evidence at trial showed that (1) API personnel collaborated with Hoskins in selecting a consultant and directed Hoskins to confirm that selection with Alstom’s regional leaders; (2) after API personnel changed their mind in favor of two new consultants, API personnel and Hoskins attended in-person meetings with the consultants where the attendees confirmed the terms of the consultants’ respective agreements; (3) following these meetings, API personnel directed Hoskins to finalize the deals with both consultants, which Hoskins had his own personnel execute; and (4) Hoskins proposed new terms for one consultant’s agreement, and then communicated those terms back to the consultant after securing API’s approval to make the change. API then paid the consultants, and they paid the bribe.

The jury convicted Hoskins on all seven FCPA counts and four related ones. After the verdict was entered, the district court granted Hoskins’ motion for acquittal on the ground that the government failed to adduce legally sufficient evidence on the question of agency. The government appealed (and Hoskins cross-appealed on bases not relevant here), which led to the Second Circuit’s recent decision.

Majority Opinion

At the outset, the majority — comprised of Judges Rosemary S. Pooler and Jon O. Newman — defined the term “agents” in the FCPA by reference to the common law, which neither party disputed. Under this standard, the court explained, the “three elements necessary to an agency relationship are (1) a manifestation by the principal that the agent will act for him; (2) acceptance by the agent of the undertaking; and (3) an understanding between the parties that the principal will be in control of the undertaking.” Hoskins II, at *5 (quoting In re Trib. Co. Fraudulent Conv. Litig., 946 F.3d 66, 79 (2d Cir. 2019)).

Applying this standard, the court emphasized two features of Hoskins’ relationship with API that defeated agency: Hoskins’ lack of “authority to act on API’s behalf” and API’s inability to “revoke any authority it purportedly gave to Hoskins, or even do anything to control Hoskins’s actions.” Id. at *6.

With respect to Hoskins’ authority to act on API’s behalf, the court emphasized that Hoskins was unable to bind API to the contracts with the consultants. Instead, in the majority’s view, API personnel negotiated the terms of the contracts, with Hoskins serving as nothing more than a “messenger” on their behalf. Id.

As for API’s ability to control Hoskins, the court explained that “[API personnel] did not hire Hoskins, lacked the ability to fire Hoskins, and lacked any say in Hoskins’s compensation.” Id. In reaching this conclusion, the court noted that organizational charts presented at trial showed Hoskins resided in a “parallel employment structure[]” from API, with no reporting line — or other formal relationship — connecting them. Id.

Dissenting Opinion

Judge Raymond J. Lohier Jr. dissented. According to him, the majority erred by asking whether the elements of agency existed between API and Hoskins “as a general matter,” rather than narrowing its analysis to only the “specific conduct at issue.” Id. at *13 (Lohier, J., concurring in part and dissenting in part). That error, Judge Lohier noted, led the majority to prioritize the formalities of organizational structures over the realities “on the ground.” Id. at *14.

Applying his narrower, conduct-specific analysis, Judge Lohier concluded that Hoskins was API’s agent for purposes of orchestrating the bribe. Under this analysis, Judge Lohier explained, API’s inability to fire Hoskins — which played a significant role in the majority’s reasoning — was insubstantial; the government needed to show only that API could “terminate [Hoskins’] involvement” in the scheme “at least in part,” which API did by overruling Hoskins’ selection of the initial consultant. Id. And Hoskins had authority to act on API’s behalf, Judge Lohier found, because Hoskins performed acts of “targeted agency,” such as communicating with the consultants at the direction of API personnel. Id. at *14.

Takeaways

Hoskins II shows, at a minimum, that an agency relationship under the FCPA requires more than mere collaboration — even when a foreign actor takes instruction from U.S. personnel and performs actions for their benefit and with their knowledge. The decision directs courts in the Second Circuit to evaluate agency based on formal aspects of a U.S. entity’s relationship with (and control over) a foreign actor — including organizational structures, reporting lines and the power to fire the actor as a general matter. Likewise, the decision instructs courts to consider formal criteria, such as the power to bind the U.S. entity to contracts or other final decisions, in determining the scope of the foreign actor’s authority to act on behalf of a U.S. entity.

^[1] _{This decision marks the Second Circuit’s second intervention in Hoskins’ case. Before trial, the government pursued a theory that Hoskins was liable as an accomplice or co-conspirator of Alstom Power Inc. and its personnel (who were unquestionably subject to the statute). The district court denied Hoskins’ motion to dismiss the counts based on this theory, but the Second Circuit — on interlocutory appeal — reversed on the ground that a person could not be “guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal[.]” 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 proceed on the theory at issue here — namely, that Hoskins was liable as an agent of Alstom Power Inc., which forms the basis of the latest decision.}