On August 12, 2022, the Second Circuit affirmed the acquittal of British national Lawrence Hoskins, a former employee of a UK subsidiary of a French multinational conglomerate, Alstom S.A (“Alstom”), on the grounds that he was not an “agent” of the U.S. subsidiary of Alstom, Alstom Power, Inc. (“API”), within the meaning of the Foreign Corrupt Practices Act (“FCPA”). Historically, there has been a lack of developed case law on the FCPA, partly because the law was largely enforced against large companies that prefer private consultation with the government to judicial confrontation over FCPA allegations. As the DOJ reaffirmed its recent emphasis on ensuring individual accountability for FCPA violations, individuals with competent representation, such as Hoskins, might be more inclined to challenge DOJ’s theories in the court. Against this backdrop, the Second Circuit’s rare interpretation of the FCPA cuts back on the FCPA’s broad extraterritorial reach as interpreted and enforced by the government.

Background

In 2014, Alstom pleaded guilty to a FCPA violation for bribing Indonesian officials to secure a $118 million power contract from the Indonesian government. Frédéric Pierucci, a French national who served as the head of boiler sales worldwide for Alstom, also pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA. Hoskins, serving as the Asian Area Senior Vice President for an Alstom subsidiary, was  indicted for conspiring to violate the FCPA and substantive violation of the FCPA as well. Unlike Pierucci, Hoskins chose to challenge his indictment. 

This investigation garnered outsized overseas attention. After emerging from prison , Pierrucci published a memoir, bitterly criticizing the U.S. of conducting “underground economic warfare in the guise of the global fight against corruption and terrorism.” Amid the rising tensions between China and the U.S., Pierucci’s book became a best-seller in China. He traveled across China, showed up for book-signing and interviews hosted by Chinese media outlets, publicly offering support for Meng Wanzhou, the CEO of Huawei, a Chinese multinational technology corporation, who was also subject to a DOJ investigation on different grounds. 

Since Hoskins didn’t plead guilty, a prolonged legal battle ensued. As is typical for extraterritorial enforcement of the FCPA, the key issue in dispute is whether Hoskins, a British national who facilitated a corruptive scheme in Indonesia working for a UK company, is within the category of persons covered by the FCPA.

The Extraterritorial Reach of the FCPA as Interpreted by the US Government

The FCPA articulates multiple categories of individuals subject to its jurisdiction. Generally, its anti-bribery provisions cover (i) issuers, meaning public companies registered under Section 12 of the Securities Exchange Act of 1934 (“Exchange Act”) or  required to file periodic and other reports with the SEC under Section 15(d) of the Exchange Act, and their related persons; (ii) domestic concerns, including US private companies, citizens and residents, and their related persons; and (iii) certain other persons and entities, other than issuers and domestic concerns, that act within the territory of the US. Under the statutes and the SEC and the DOJ’s official guidance, related persons include “officers, directors, employees, agents, or stockholders acting on behalf of a covered entity or individual.”

In the past two decades, the SEC and the DOJ have broadly interpreted the aforesaid categories to reach individuals or entities that have only minimal contacts with the United States. For instance, in one recent enforcement action before the United States District Court for the Southern District of New York ended with a default judgment in favor of the SEC, Li, a Chinese citizen who served as an employee of a Chinese subsidiary of a US public company, was deemed by the SEC as an “officer, director, employee or agent” of a US “issuer”, even though (i) the Chinese subsidiary and the US parent company are separate legal entities; (ii) almost all elements of the corruptive scheme occurred outside the US; (iii) based on government’s complaint his only direct connection with the US seemed to be his receipt of email instructions from the US parent company. As one scholar noted two decades ago, under the FCPA anti-bribery provisions, “a telephone call to the United States, a letter mailed to the United States, the use of air or road travel, or the clearing of a check or wire transfer of funds through a financial institution in the United States” may be sufficient to establish jurisdiction. 

Going hand in hand with the minimal nexus required for jurisdiction is the severe monetary sanctions imposed against foreign companies in recent years. According to a database maintained jointly by Stanford Law School and Sullivan & Cromwell LLP, nine out of the ten largest US monetary sanctions have been against foreign companies.

FCPA enforcement has not always been so active. Its breadth and intensity have ramped up dramatically since 1997. Before 1997, prosecutions for foreign bribery were quite rare, partly out of concern that the FCPA might put American businesses at a competitive disadvantage when foreign corporations largely were free, or even encouraged, to bribe abroad. 

The signing of the Organization for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”) in 1997 ended the enforcement silence, which requires each signing country to take necessary measures to criminalize commercial bribery. According to some, this represents an international consensus against foreign bribery, which legitimizes the US’s extraterritorial enforcement of its own anti-corruption laws and provides the US with the capability to increase enforcement dramatically, both internationally and domestically, without hurting the international competitiveness of American businesses abroad. Some go further by suggesting that broad extraterritorial enforcement is required under the OECD Convention’s strong-worded language against foreign bribery and a failure to do so may amount to a contravention to the US’s treaty obligation. 

These arguments in favor of broad extraterritorial enforcement of the FCPA are not without detractors, who argue that such broad extraterritorial enforcement of the FCPA will lead to difficulties relating to “international comity, conflict with foreign law, interference with foreign legal proceedings, and diplomatic issues,” pointing out that almost no other OECD country has exercised extraterritorial anti-bribery jurisdiction nearly as aggressive as the US. 

The Second Circuit’s Judicial Interpretation

Hoskins was indicted based on the theory that he was an “agent” of API, a US “domestic concern”, to carry out the corruptive scheme. The crux of the case is whether an agency relationship existed between Hoskins and API. 

According to the Second Circuit’s opinion, Hoskins was not an employee of API. Rather, he was hired and assigned by Alstom’s UK subsidiary to assist with the international outreach of Alstom’s French subsidiary. In such capacity, he received and followed API’s instructions, which was the final decision-maker in the hiring of consultants for the project.

In light of the above, applying the common law agency definition, the District Court held the government had failed to show that Hoskins was API’s agent. The court reasoned that although API might have been the final decision-maker regarding the hiring of the consultant, records showed that API lacked the authority to control Hoskin’s actions and to “fire, reassign, demote, or impact the compensation of Hoskins,” which is required for establishing control by a principal of an agent.

The Second Circuit agreed. The court reasoned that the fact Hoskins received instructions from API didn’t predicate API’s control, given (i) Hoskins and his API counterparts operated under separate employment structures; (ii) API’s lack of  authority over Hoskins’ employment; and (iii) nothing indicated Hoskins was authorized to enter into any agreements on API’s behalf and could bind API to any legal commitments.

Judge Lohier dissented, arguing that as long as API could cut Hoskins out of this specific scheme entirely, Hoskins should be deemed as API’s agent, regardless of whether API could exercise general control over Hoskin’s work or compensation. Notably, the dissent also mentioned the US’s treaty obligation under the OECD Convention to vigorously enforce its anti-corruption laws and cautioned that the court’s decision may lead to unintended consequences in light of such obligation.

Key Takeaways

The Second Circuit’s decision provides a rare judicial interpretation of the FCPA. Historically, the DOJ,  the SEC and the prosecuted entities largely have chosen to enforce the FCPA extraterritorially through non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”), which are seldom subject to any meaningful judicial review. Scarce as it may be, the Second Circuit’s recent decision represents an important check on the broad extraterritorial reach of the FCPA as interpreted and enforced by the government.

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Hanning Deng is a 2L student at Georgetown University Law Center. Previously, he worked as an associate at Jun He LLP for nearly three years, specializing in cross-border commercial litigation and multilateral development bank sanction. At Georgetown, Hanning is a Business Law Scholar studying corporate law, a staff editor for the Georgetown Journal of International Law and a fellow for the Institute of International Economic Law. He holds an LLM from Cornell Law School and graduated with his BA from Nanjing University, where he studied Chinese law.