The Hoskins Prosecution Comes To An End

Judge gavel.jpgBy Dan Portnov

On Friday, November 8, 2019, Lawrence Hoskins was convicted of violating the Foreign Corrupt Practices Act.[1] The jury verdict, delivered on a Friday afternoon in Connecticut, barely made the national news (the bar has been set higher these days), but in the FCPA world it was a huge victory for the government. Hoskins was found guilty as an agent of a French company’s U.S. subsidiary. So why was this prosecution so important?

U.S v. Hoskins—Background

Hoskins, a UK citizen, was a senior vice president for the French company Alstom SA and retired in 2004. He claimed never to have set foot in the United States prior to his arrest.

In 2012, the Department of Justice (DOJ) charged Hoskins, two of his former colleagues and Alstom itself with numerous counts of FCPA violations for a bribery scheme that ran from 2002 through 2009 in Indonesia. According to the indictment, Hoskins worked with two consultants to funnel bribes to Indonesian officials to win contracts. He knew that, pursuant to these contracts, the U.S. subsidiary of Alstom would wire the consultants money to use as bribes. Hoskins was also charged with money laundering.

The length of the prosecution, over seven years from indictment to verdict, is not unusual in FCPA cases. In that time, all of Hoskins’ co-defendants and the company pled guilty and paid over $800 million in fines. One of his co-conspirators had even finished serving his 30-month sentence before Hoskins’ trial began.

The Second Circuit Curtails the Reach of the FCPA

The most notable impact of the Hoskins prosecution was that it created important FCPA precedent. Hoskins’ lawyers immediately moved to dismiss the indictment on the theory that as a non-resident, Hoskins could not conspire to violate, nor aid or abet the violation of the FCPA. The government opposed the motion, arguing that Hoskins could be charged with conspiring with Alstom’s U.S. subsidiary Alstom Power Inc. even if he did not act as an agent of the U.S. business. The district court granted the motion to dismiss and Second Circuit Court of Appeals affirmed the decision in 2018.

The ruling signaled an important limitation to the government’s previous FCPA prosecution theories. That is, an individual cannot face accomplice or co-conspirator culpability for an FCPA violation that they are incapable of committing as a principal. Here, because Hoskins was never a citizen or resident of the United States, and was not accused of acting in furtherance of a bribery scheme while located in the United States, the government could not charge him with conspiring to violate the FCPA.

In reaching this conclusion, the Second Circuit relied on Supreme Court precedent that held that “where Congress excludes a class of individuals from liability under a criminal statute, the government may not rely on accomplice theories of liability to prosecute those same individuals.”[2] The appellate court thus found that the text and legislative history of the FCPA all showed that Congress purposely tailor the FCPA to exclude foreign nationals from culpability when their actions took place outside of the United States and they did not act as agents, directors, officers or employees of a U.S. company or domestic subsidiary of a foreign company.

The Second Circuit did overrule the district court in part, stating that to charge and convict Hoskins on the FCPA violation, the government would have to allege and prove that Hoskins acted as an “agent” of Alstom Power in carrying out the bribery scheme. Consequently, the government pivoted in its theory of Hoskins’ culpability, charging him with acting as an agent of Alstom Power in the Indonesian bribery scheme.

The practical fallout from the 2018 Hoskins decision was significant. Subsequent FCPA prosecutions for similar conduct sought to expand the traditional notions of what constitutes an “agent.” The government has also looked for openings to extend theoretical territorial jurisdiction under the statute to conduct occurring in the United States while a defendant was not physically present here. Third, the government has increasingly pushed foreign law enforcement partners to prosecute their citizens for similar corruption offenses if it felt that its domestic FCPA enforcement would ultimately fail. Finally, the government has made sure to bring money laundering and wire fraud charges in addition to FCPA violations so as to increase its chances of conviction. (Hoskins also faced money-laundering charges).

The Jury Verdict and Aftermath

When the case was finally set for trial this year, both sides argued over whether to convict the United States would have to prove that Alstom Power had authority or control over Hoskins. (The FCPA does not define the term “agent.”) The defense team argued that as an executive of Alstom S.A., it was Hoskins who had authority over Alstom Power and not the other way around.

In a pretrial order, the district court sided with the government, finding that the “principal need only control the undertaking” rather than the agent itself. The court also rejected the Hoskins’ attempt to list aspects of the agency relationship such as “the right to control Mr. Hoskins’ conduct,” “the right to supervise and assess Mr. Hoskins’ work” or “the right to terminate his services,” holding that “[n]arrowly listing aspects of an agency relationship as defendant requests is likely to mislead the jury and is unnecessary to ensure the jury’s understanding of agency principles.”

Following the close of evidence, the court instructed the jury that the definition of agent included:

  1. a manifestation by the principal that the agent will act for it;
  2. the agent’s acceptance of an “undertaking”—meaning “acts or services” for the principal; and
  3. an understanding that the principal is “in control” of those acts or services.

The court instructed further that: “one may be an agent for some business purpose and not others.”

The expansive instructions on agency proved to be helpful. After a day of deliberation, the jury came back with a verdict that found Hoskins guilty of 6 out of 6 FCPA counts (and 11 out of 12 charges overall). Hoskins’ team promptly vowed to appeal the judgment.

The Hoskins prosecution thus created two vital FCPA precedents in the prosecution of foreign nationals whose operations do not take place in the United States (at least in the Second Circuit). First, the legal theory of culpability is curtailed to that of an agency relationship, causing prosecutors to be more careful in their charging decisions. However, once charged, foreign nationals can expect that courts may take a wide view of agency that makes defending these charges at trial very challenging.

In the meantime, we await the results of Hoskins’ inevitable Second Circuit appeal, as well as FCPA cases winding their way through other courts of appeals.[3] Stay tuned and Happy Thanksgiving!

[1] Full disclosure: I worked at Clifford Chance from 2011 to 2015 and know the lawyers who represent Hoskins. They are an outstanding group. And nothing written in this post is privileged.

[2] Gebardi v. United States, 287 U.S. 112 (1932).

[3] See, e.g., United States v. Firtash, Docket No. 13-CR-00515 (N.D. Ill. June 21, 2019), in which the district court judge suggested that the Seventh Circuit would reject the rationale of the Second Circuit in Hoskins.

 

This entry was posted in Conviction After Jury Trial, FCPA, Money Laundering, Trials. Bookmark the permalink.

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