US District Court cuts off conspiracy liability and rejects DOJ’s attempt to extend FCPA’s reach
October 2015 | PROFESSIONAL INSIGHT | FRAUD & CORRUPTION
Financier Worldwide Magazine
On 13 August the US District Court for the District of Connecticut rejected an attempt by the Department of Justice (DOJ) to extend the already expansive reach of the US Foreign Corrupt Practices Act (FCPA) to a non-US resident foreign national who is not otherwise subject to the FCPA. The DOJ had argued that theories of conspiracy or accomplice liability allowed the court to read the FCPA to reach the foreign national, but the court rebuffed those arguments based on a careful reading of the FCPA text and legislative history.
Lawrence Hoskins, a British citizen and former executive for French power and rail conglomerate Alstom S.A., was charged under the FCPA for allegedly authorising bribes to Indonesian officials in 2003 to secure a $118m contract to build power stations for Alstom’s US subsidiary. The bribes allegedly were part of a broader scheme to secure various power projects in Indonesia from 2002-09, and the Indonesian scheme was itself part of an even larger corruption scheme which took place in Indonesia, Saudi Arabia, Egypt and the Bahamas, spanned over a decade, and involved tens of millions of dollars in bribes. Alstom S.A. pleaded guilty to this global bribery scheme in 2014 and paid $772m to settle charges of FCPA violations with the DOJ.
Consistent with its recent focus on bringing enforcement actions against individuals (in addition to companies), the DOJ also charged three former Alstom executives who allegedly were involved in the same Indonesia scheme as Hoskins. All three executives were employed by the US subsidiary and pleaded guilty to conspiring to violate the FCPA, while Hoskins chose to fight the conspiracy charge.
Hoskins moved to dismiss the charge that he conspired to violate the FCPA by acting ‘together with’ Alstom’s US subsidiary (a ‘domestic concern’ under the FCPA) because the conspiracy count did not allege that he was a domestic concern, that he was acting as an agent of a domestic concern, or that he had committed any act in furtherance of a corrupt payment while physically present in the US. In other words, he argued that the conspiracy count was defective because it did not allege that Hoskins fell into any of the defined FCPA classes that provide a basis for individuals to be charged independently with a substantive FCPA violation.
As a British citizen who was stationed at an Alstom subsidiary in France at the time of the alleged bribes, Hoskins is not a domestic concern. And it was undisputed that Hoskins never entered the territory of the US and thus could not have taken any action in furtherance of a corrupt payment while in the US. As someone alleged merely to have acted ‘together with’ a domestic concern, rather than as an agent of a domestic concern, Hoskins asserted that he could not properly be charged with conspiracy to violate the FCPA.
The court noted that under established principles of conspiracy and accomplice liability, “where Congress chooses to exclude a class of individuals from liability under a statute, ‘the Executive [may not]... override the Congressional intent not to prosecute’ that party by charging it with conspiring to violate a statute that it could not directly violate”. After a careful analysis of the FCPA’s text and legislative history, the court found that “Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability” under the FCPA.
Although not in direct conflict with the guidance provided by the DOJ and the Securities and Exchange Commission (SEC) in 2012, the court’s ruling creates some friction with the position taken by the regulators in their Resource Guide that foreign companies or individuals may be liable for conspiracy to violate the FCPA, even where they could not independently be charged with a substantive FCPA violation.
The court’s ruling suggests the opposite – by “carefully delineat[ing] the classes of people subject to liability” under the FCPA while excluding others, Congress revealed its intent not to impose conspiracy or accomplice liability on those not subject to liability directly.
While the FCPA casts a wide jurisdictional net, the court’s ruling serves as an important check and reminder that its reach is not limitless. It held that non-US resident foreign nationals are beyond that reach if they did not act as an agent for a company or person subject to FCPA jurisdiction and if they themselves did not take any act in furtherance of an FCPA violation within the territory of the US. But potential FCPA defendants, beyond the narrow class of non-resident foreign national individuals like Hoskins, may also take some comfort from the court’s ruling. This case is an example where an FCPA defendant chose to contest the government’s overreaching theory before a court that carefully considered the legal questions and ruled against the government, notwithstanding arguably conflicting ‘guidance’ from the DOJ and SEC.
Tirzah S. Lollar is a partner and Kristen M. Shepherd and Aislinn Affinito are associates at Vinson & Elkins. Ms Lollar can be contacted on + 1 (202) 639 6670 or by email: firstname.lastname@example.org. Ms Shepherd can be contacted on +1 (202) 639 6697 or by email: email@example.com. Ms Affinito can be contacted on +1 (202) 639 6622 or by email: firstname.lastname@example.org.
© Financier Worldwide
Tirzah S. Lollar, Kristen M. Shepherd and Aislinn Affinito
Vinson & Elkins