Play to Win: Judge Overturns FCPA Guilty Verdict

Introduction

In recent years, the Department of Justice (“DOJ” or “the Government”) has made a concerted effort to pursue individuals for alleged Foreign Corrupt Practices Act (“FCPA”) violations. As their efforts continue apace, we are seeing an uptick in FCPA litigationand trials that historically would be considered an anomaly in the FCPA enforcement space where cases typically have been brought against companies instead of their executives and settled with a guilty plea or deferred prosecution agreement without the need or expense of litigation.  Generally speaking, given the immense personal impact and high stakes of a prosecution against an individual instead of a deep-pocketed business entity, individual defendants, as opposed to corporate defendants, are more likely to force the Government’s hand and try their luck at trial.  As a result, the ostensibly formidable body of prosecutorial common law that has been built by DOJ around FCPA corporate settlements is being tested by individual defendants as never before and it remains to be seen whether DOJ’s body of FCPA common lawnbis any more formidable than a house of cards. 

For example, DOJ suffered several setbacks in a case involving an executive who successfully argued, after having been convicted at trial that he could not, as a matter of law, have violated the FCPA.  On February 26, 2020, Connecticut District Court Judge Arterton granted a post-trial motion to acquit Lawrence Hoskins of one count of conspiracy to violate the FCPA and six counts of violating the FCPA.  The decision was not DOJ’s first setback in the case; before trial even began, DOJ also lost its fight on using an accomplice theory to charge Hoskins.  These decisions reflect yet another blaze on a trail that may be followed by other individuals facing prosecution.  Perhaps as important, they may provide more leverage for companies under threat of prosecution who are faced with ever more aggressive interpretations of the FCPA by DOJ and the Securities and Exchange Commission.  

Background

A. The DOJ’s First Loss: Accomplice Liability under the FCPA

One of the Government’s first hurdles in any FCPA case is establishing a jurisdictional hook to bring charges against a defendant.  In this realm DOJ has been particularly aggressive, and their approach to the Hoskins case was no different. 

As background, the FCPA’s anti-bribery provisions apply on their face to three categories of persons and entities: (i) United States Stock Issuers and their officers, directors and agents; (ii) domestic concerns and their officers, directors and agents; and (iii) foreign individuals that take actions in furtherance of the prohibited trade practice within the United States.  See 15 U.S.C. § 78dd – 1-3. 

Hoskins, a citizen of the United Kingdom working as a Vice President of French company, Alstom S.A.,¹ who never stepped foot in the United States throughout these alleged events, did not appear to fit under any of these defined categories.  Notwithstanding that fact, DOJ argued, before trial, that Hoskins could still be prosecuted if he conspired with or aided and abetted an FCPA violation by a person or a company that does meet the stated statutory criteria. 

Judge Arterton disagreed with DOJ and held the text, structure, and legislative history of the FCPA prohibited the Government from using an accomplice theory alone to prove that Hoskins violated the FCPA, a decision the Government appealed.  The Second Circuit subsequently affirmed that holding.  See United States v. Hoskins, 123 F. Supp. 3d 316, 327 (“The Government may not argue… that Defend ant could be liable for conspiracy even if he is not proved to be an agent of a domestic concern.”); United States v. Hoskins, 902 F.3d 69, 71 (2d Cir. 2018) (“We determine that the FCPA defined precisely the categories of persons who may be charged for violating its provisions.”).  The decision forced the Government to abandon its accomplice theory and to switch theories at trial and prove that Hoskins fell under one of the categories expressly covered by the FCPA.  See Hoskins, 902 F.3d at 95; Hoskins, 123 F. Supp. 3d at 327. 

B. DOJ’s Second Loss: Hoskins as an Agent of a Domestic Concern

At trial, the Government argued that Hoskins violated the FCPA as an agent of Alstom’s U.S. subsidiary by helping hire consultants to bribe Indonesian officials.  By convicting him of one count of conspiracy to violate the FCPA and six substantive FCPA counts (in addition to separate conspiracy and money laundering charges), the jury implicitly found that the Government met its burden in proving that Hoskins was in fact an agent of the U.S. company.  See Verdict Form, ECF No. 583. 

In a surprising turn of events, however, Judge Arterton overruled the jury verdict acquitting Hoskins on all of the FCPA charges.  See Ruling on Def’s Rule 29(c) and Rule 33 Mots. at 14, ECF No. 617.  The linchpin of the ruling was that DOJ failed to prove that Hoskins was an agent of a U.S. company and therefore, Hoskins could not have violated the FCPA.  Judge Arterton reasoned that, while there was evidence that the United States subsidiary generally controlled the hiring of consultants in the bribery scheme, there was no evidence that showed the subsidiary controlled Hoskins’ actions.  Id. at 16.  Once again, the Government’s theory that the FCPA applied to Hoskins—a foreign national, who was not employed by a U.S. company and never stepped foot in the U.S. while working for Alstom—failed as a matter of fact and law.²

Key Takeaways

Despite the setbacks, DOJ will likely continue to be aggressive in their approach to prosecuting companies and individuals facing
FCPA charges.  The Hoskins decision was fact specific, so one can expect that DOJ will try to collect more evidence if they are relying on the agency theory as their jurisdictional hook. 

The case is reminiscent of United States v. Castle, which was cited in parties’ briefings.  There, DOJ attempted to charge foreign officials with violating the FCPA. United States v. Castle, 925F.2d 831, 832 (5th Cir. 1991) (citing United States v. Blondek, 741 F. Supp. 116, 116 (N.D. Tex. 1990)).  The issue was “whether foreign officials, whom the Government concedes it cannot prosecute under the FCPA itself, may be prosecuted under the general conspiracy statute for conspiring to violate the Act.” Id. at 832.  The legislative history of the FCPA led the Fifth Circuit to conclude that Congress exempted foreign officials from the FCPA.  Id. at 835 (“Given that Congress included virtually
every possible person connected to the payments except foreign officials, it is only logical to conclude that Congress affirmatively chose to exempt this small class of persons from prosecution.”). 

This is not to say Hoskins will open the floodgates to litigation. What is clear is that as individual defendants continue to challenge the Government and litigate FCPA principles rooted in the Government’s own untested common law, more cracks in the wall are likely to emerge.

Footnotes

¹ Alstom S.A. was prosecuted separately by DOJ. 
The Company entered a guilty plea on December 22, 2014 to violating the FCPA books and records and internal controls provisions.  See
United States v. Alstom S.A. et al., No. 3:14-cr-00246-JBA.  The Company was fined $772,290,000, which, at the time, was the largest criminal fine imposed for an FCPA violation. The Company was not required to retain a corporate monitor, and instead had self-reporting obligations as part of the settlement, because it already had a monitor as part of a 2012 Negotiated Resolution Agreement with the World Bank.  The plea agreement included a provision that if Alstom S.A. failed to satisfy the monitor requirements of the World Bank it would need to retain a second monitor for another three-year period. 

² Notably, not all courts agree that an individual must fit in one of the defined categories to violate the FCPA.  The Northern District of Illinois recently disagreed with Hoskins and held that the Government could use the federal aider and abettor statute as well as the federal conspiracy statute to find defendants violated the FCPA.  See United States v. Firtash, 392 F. Supp. 3d 872, 888-89 (N.D. Ill. 2019).