Client Alert

U.S. Court Overturns FCPA Convictions of Former Power Company Executive and Sentences Him to 15 Months on Money Laundering Charges

09 Mar 2020

On March 6, 2020, a Connecticut federal judge sentenced former power company executive Lawrence Hoskins to 15 months’ imprisonment on money laundering charges, following his acquittal by the court the previous week on foreign bribery charges. In November 2019, a federal jury had convicted Hoskins of conspiring to bribe Indonesian officials to win a power plant contract, finding him guilty of 11 out of 12 Foreign Corrupt Practices Act (“FCPA”) and money laundering charges. But in a February 26, 2020 decision, U.S. District Judge Janet Bond Arterton overturned the FCPA charges, finding that the evidence introduced by the government at trial was not sufficient to prove that Hoskins had acted as an “agent” of a U.S. subsidiary of French multinational power construction company Alstom S.A. (“Alstom”) in a scheme to bribe Indonesian officials to secure a power plant project. The court upheld Hoskins’s money-laundering convictions.

The district court’s ruling[1] acquitting Hoskins of FCPA violations and his subsequent sentencing on money laundering charges are the latest developments in a long-running case that has focused attention on whether and how the government may use agency theory to pursue foreign nationals and companies who cannot be charged with substantive violations of the Foreign Corrupt Practices Act (“FCPA”). The court’s decision underscores the challenges that prosecutors face following a 2018 Second Circuit decision in the same case that limited the government’s ability to bring FCPA charges against certain foreign nationals and companies, and it may prompt the government to shift tactics to pursue other charges and theories of liability in these types of cases. The government has already filed a notice of appeal to the Second Circuit from the district court’s ruling.[2]

Background

The FCPA’s anti-bribery provisions apply to three categories of individuals and entities: (1) “issuers” of securities registered under the Securities Exchange Act, or any officer, director, employee, or agent of an issuer that uses interstate commerce in furtherance of a bribe; (2) “domestic concerns,” meaning a U.S. citizen, national, resident, or company, or any officer, director, employee, or agent of a domestic concern that uses interstate commerce in furtherance of a bribe, or (3) any foreign person or business that is not an “issuer” or “domestic concern” and that commits an act in furtherance of a bribe while in the territory of the United States.[3]

Historically, the U.S. Department of Justice (“DOJ”) took the position that foreign nationals and companies could be charged with conspiring to violate the FCPA “even if they are not, or could not be, independently charged with a substantive FCPA violation.”[4] Consistent with this approach, DOJ alleged that U.K. national Lawrence Hoskins had conspired to violate the FCPA and had aided and abetted others in violating the FCPA, based on his role in a bribery scheme involving Alstom Power Inc. (“API”), a U.S. subsidiary of Alstom, to win a power plant construction contract in Indonesia.[5]  Although Hoskins was not employed by API and did not report to anyone from API, instead working for other Alstom subsidiaries, he allegedly authorized improper payments to two consultants retained by API for the purpose of paying bribes to Indonesian officials who could help the company win the contract.[6]

While the government alleged that several parts of the bribery scheme occurred in the United States, including relevant meetings held by API executives, it conceded that Hoskins never traveled to the United States while the scheme was ongoing.[7] Thus, DOJ could not charge Hoskins with a substantive violation of the FCPA anti-bribery provision that applies to foreign nationals who act in furtherance of a bribe “while in the territory of the United States.”

Prior to trial, the district court granted the defendant’s motion to dismiss the FCPA conspiracy charge to the extent it was based on Hoskins conspiring with API. The district court also denied a closely related motion in limine by the government that sought to preclude Hoskins from arguing that he could only be convicted of the substantive FCPA violations, which relied on an aiding-and-abetting theory, if the government first proved that Hoskins fell within one of the FCPA’s enumerated categories of defendants.[8]

The government then sought an interlocutory appeal of the district court’s rulings before the Second Circuit.

The Second Circuit’s Decision

In August 2018, the Second Circuit issued its decision in the case,[9] holding that foreign nationals who cannot be charged as principals under the FCPA cannot be charged with conspiring to violate or aiding and abetting a violation of the statute. The Second Circuit based its decision upon two grounds: (1) the affirmative legislative policy exception, which bars accomplice liability where it is clear from the structure of a particular legislative scheme that the lawmaker intended to exclude certain persons whose conduct might otherwise be found complicit; and (2) the presumption against extraterritoriality, under which courts must construe federal laws to apply domestically unless there is clearly expressed congressional intent to the contrary.

Significantly, the Second Circuit left open the possibility that the government may pursue FCPA conspiracy or complicity charges against foreign defendants if they acted as “agents” of an issuer or domestic concern. In Hoskins’s case, if the government could establish that Hoskins fell into one of the FCPA’s enumerated categories of defendants—i.e., as an agent of API, a U.S. company and “domestic concern”—he could still be held liable for violating the FCPA. The Second Circuit declined to express any “views on the scope of agency under the FCPA.”[10]

“Agency” Jury Instruction, Trial, and Conviction

Because the Second Circuit had not addressed the definition of “agency” under the FCPA, pre-trial briefing focused on this critical issue. In addition to the FCPA conspiracy count, the government had also charged Hoskins with substantive FCPA violations that were based on an agency theory. Although Hoskins and the government agreed that the definition of agency should draw from “traditional agency law principles” and include an element of “control,” they disagreed on the language that should be used for the jury instruction. Ultimately, the court instructed the jury regarding agency as follows:

An agent is a person who agrees to perform acts or services for another person or company, known as the principal. To create an agency relationship, there must be, one, a manifestation by the principal that the agent will act for it; two, acceptance by the agent of the undertaking; and, three, an understanding between the agent and the principal that the principal will be in control of the undertaking. The undertaking consists of the acts or services which the agent performs on behalf of the principal.[11]

On November 8, 2019, following a two-week trial, the jury convicted Lawrence Hoskins of one count of conspiracy to violate the FCPA, six substantive violations of the FCPA, one count of conspiracy to commit money laundering, and three substantive money laundering violations.

Post-Judgment Acquittal and Sentencing

Following his conviction, Hoskins filed a motion for acquittal on all counts, or for a new trial.[12] On February 26, 2020, Judge Arterton upheld Hoskins’s money laundering counts of conviction, but overturned the FCPA counts, finding that there was not enough evidence to show that he was an “agent” of Alstom’s U.S. subsidiary, API.[13]

In reaching this conclusion, the district court focused on the need to show API’s authority to “control” Hoskins’s actions in order to establish an agency relationship. The court acknowledged that a rational jury could conclude that API both (1) controlled the hiring of consultants for the Tarahan Project and (2) gave Hoskins instructions, which he followed.[14] The court, however, found that this evidence was insufficient to establish that Hoskins was an agent of API, as it showed only that API generally controlled the hiring of consultants for the Tarahan Project—not that API had the right or ability to exercise “interim control” over Hoskins’s actions.[15] The court also noted a lack of any of the “indicia of control which are typical of an agency relationship,” such as a principal’s capacity to assess the agent’s performance, provide instructions to the agent, or terminate the agency relationship by revoking the agent’s authority.[16]

The court concluded that it saw no evidence upon which a rational jury could conclude “that there was an understanding between Mr. Hoskins and API that API would be in control of Mr. Hoskins’s actions on the Tarahan Project or that API did control Mr. Hoskins’s actions in a manner consistent with agency relationships.”[17]

On March 6, 2020, Hoskins was sentenced to 15 months’ imprisonment and a $30,000 fine based on the money laundering charges. The court rejected the government’s argument that the FCPA-related conduct should be considered in calculating Hoskins’s sentence under the federal sentencing guidelines, and the sentence fell far short of the government’s recommended sentence of seven to nine years’ imprisonment. At the same time, it exceeded the defendant’s proposed sentence of home confinement in the United Kingdom.

On March 9, 2020, the government filed a notice of appeal to the Second Circuit from the district court’s February 26, 2020 ruling.

Implications of Hoskins

The district court’s decision overturning Hoskins’s FCPA convictions demonstrates the challenges that the government faces in seeking to prosecute certain foreign nationals and companies based on an agency theory. The court’s analysis offers some legal guidance on this issue, including through its focus on the “right of interim control” of the agent by the principal—which it found lacking in Hoskins’s case—and by generally embracing a narrower view than the government of the scope of “agency” required under the FCPA. At the same time, the court emphasized the “highly-factual and often nuanced” nature of agency analysis. Ultimately, whether an individual or company is an “agent” for purposes of the FCPA will turn in significant part on highly case-specific facts and circumstances.

The decision also has broader implications for DOJ’s ability to proceed against foreign subsidiaries on the basis that they are “agents” of parent companies that are domestic concerns or issuers. In the wake of the Second Circuit’s Hoskins decision, there had been some concern that DOJ would take the position that the parent-subsidiary relationship automatically establishes an agency relationship. On December 4, 2019, shortly after Hoskins was convicted but before Judge Arterton’s recent decision, Assistant Attorney General Brian A. Benczkowksi spoke publicly about the case and suggested that, going forward, the DOJ would use agency theory in FCPA cases, but was “not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statue towards its outer edges.”[18] The AAG attempted to allay concerns about DOJ overreach, making clear that DOJ “will not suddenly be taking the position that every subsidiary, joint venture, or affiliate is an ‘agent’ of the parent company simply by virtue of ownership status. Conversely, we will also not be taking the position that every parent company should automatically be held liable for the acts of its subsidiaries, joint ventures, or affiliates based on an agency theory.”[19] The AAG noted, however, that “if the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the Department likely would strongly favor prosecution in those instances.”[20]

The extent to which these statements will continue to reflect DOJ’s approach after Judge Arterton’s decision remains to be seen. If the decision survives the government’s appeal, prosecutors may choose to focus in future agency cases on developing evidence that reflects the “indicia of control” discussed in Hoskins. Alternatively, the decision may prompt a move away from agency theory altogether and towards other available theories, such as money-laundering, wire fraud, or other statutes to pursue foreign bribery-related misconduct.

At the same time, the practical impact of the Hoskins line of cases may be somewhat limited, as the Second Circuit’s decision is binding only in that Circuit. Indeed, a district court in the Seventh Circuit has already rejected the Second Circuit’s approach.[21]  Nevertheless, Judge Arterton’s decision may cause DOJ to proceed more cautiously against certain foreign defendants, while also encouraging it to develop an evidentiary basis for the existence of an agency relationship with domestic concerns or issuers. The decision may also give non-resident foreign nationals and non-issuer foreign companies some leverage to challenge DOJ’s asserted bases for jurisdiction.

Key Takeaways

  • The district court’s decision to overturn Hoskins’s substantive and conspiracy FCPA convictions demonstrates the legal and factual challenges that the government faces in prosecuting certain foreign nationals or companies on the basis that they acted as “agents” of a domestic concern or issuer, although it remains to be seen if the decision will survive the government’s appeal to the Second Circuit.
  • Although the district court’s decision rejected the government’s broader understanding of “agency” and provides some guidance regarding the scope of “agency” under the FCPA, a finding that a particular individual or company acted as an “agent” for purposes of FCPA liability will likely continue to turn heavily on the facts and circumstances of each case.
  • The decision may cause DOJ to proceed more cautiously against certain foreign defendants on an agency theory of liability and to pursue alternative legal theories such as money laundering or wire fraud, and it may give non-resident foreign nationals and non-issuer foreign companies some leverage to challenge the DOJ’s asserted bases for jurisdiction.
  • The decision’s impact may nonetheless be somewhat limited in practice: It may be overturned on appeal, but even if the decision is affirmed, it may not be followed by courts outside the Second Circuit. Notably, DOJ has already persuaded a district court in the Seventh Circuit to decline to follow the reasoning of the Second Circuit’s Hoskins decision.

[1] Ruling on Def.’s Rule 29(c) and Rule 33 Mots., No. 3:12-cr-238-JBA (D. Conn. Feb. 26, 2020), ECF No. 617.

[2] Notice of Appeal, No. 3:12-cr-238-JBA (D. Conn. Mar. 9, 2020), ECF No. 622.

[3] See 15 U.S.C. §§ 78dd-1, 78dd-2, & 78dd-3. Sections 78dd-1 and 78dd-2 also apply to stockholders acting on behalf of issuers or domestic concerns. In addition, Sections 78dd-1 and 78dd-2 contain “alternative jurisdiction” provisions, not relevant here, that prohibit U.S. businesses and persons from engaging in acts outside the United States in furtherance of a corrupt payment, “irrespective” of the use of a means or instrumentality of interstate commerce. 15 U.S.C. §§ 78dd-1(g), 78dd-2(j).

[4] DOJ and SEC, A Resource Guide to the U.S. Foreign Corrupt Practices Act, at 34, available at https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf.

[5] See Third Superseding Indictment, No. 3:12-cr-238-JBA (D. Conn. Apr. 15, 2015), ECF No. 209.

[6] See id. ¶¶ 3, 7-8.

[7] See United States v. Hoskins, 902 F.3d 69, 72 (2d Cir. 2018).

[8] See id. at 73-74.

[9] See generally id. 77-98.

[10] 902 F.3d 69 at 71 n. 1.

[11] Trial Tr. Vol. VII at 1246-47; see also Ruling on Def.’s Mot. for Instr. on Agency (D. Conn. Aug. 23, 2019), ECF No. 532; Ruling on Def.’s Rule 29(c) and Rule 33 Mots., No. 3:12-cr-238-JBA (D. Conn. Feb. 26, 2020), ECF No. 617 at 4 n. 1.

[12] Mem. of Law in Support of Rule 29(c) Mot., No. 3:12-cr-238-JBA (D. Conn. Nov. 29, 2019), ECF No. 589.

[13] Ruling on Defendant’s Rule 29(c) and Rule 33 Motions, No. 3:12-cr-238-JBA (D. Conn. Feb. 26, 2020), ECF No. 617.

[14] Id. at 14.

[15] Id. at 14–16.

[16] Id. at 17–18.

[17] Id. at 18.

[18] Assistant Attorney General Brian A. Benczkowski, Remarks at the American Conference Institute’s 36th International Conference on the Foreign Corrupt Practices Act, National Harbor, MD (Dec. 4, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-remarks-american-conference.

[19] Id.

[20] Id.

[21] United States v. Firtash, 392 F. Supp. 3d 872 (N.D. Ill. 2019) (declining to follow the Second Circuit and noting, “the Second Circuit recently held that even when charged via the federal conspiracy or complicity statutes, ‘foreign nationals may only violate the [FCPA] outside the United States if they are agents, employees, officers, directors, or shareholders of an American issuer or domestic concern.’ . . . Hoskins would thus require an additional element be alleged in any indictment for conspiracy or complicity where the substantive offense is (or would have been) an FCPA violation: that the defendant is the agent of a domestic concern or a qualified foreign national. . . . The government observes, however, that controlling Seventh Circuit case law declines to impose the requirement recognized in Hoskins. The government is correct.”).

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