By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
The influential United States Court of Appeals for the Second Circuit ruled on August 24 in that a non-resident foreign national cannot be liable for conspiracy to violate the Foreign Corrupt Practices Act (FCPA) or for an aiding and abetting violation of that statute, unless the government shows the defendant acted as an agent of a domestic concern or that the defendant took action in furtherance of the violation while physically present in the United States.
The Wall Street Journal highlighted the ruling’s significance in :
The ruling illustrates the limits of the Foreign Corrupt Practices Act, and defense attorneys said it could prompt more challenges from companies or individuals accused of violating the law….
“By taking the narrower view of the statute, it is potentially a very significant pullback on the Justice Department’s ability to go after foreign companies and foreign individuals,” said Philip Urofsky, a partner at the firm Shearman & Sterling LLP.
Most of the largest FCPA penalties have been levied against foreign companies, according to the WSJ (citing ).
In a , Sullivan & Cromwell (S & C) wrote:
Given the tendency of companies subject to FCPA-related allegations to enter into negotiated settlements with the DOJ and SEC, litigated decisions construing the FCPA have been rare and largely limited to claims against individuals, who have less incentive to settle. Given this scarcity of judicial opinions construing the FCPA, decisions such as Hoskins provide useful guidance as to the elements and scope of liability under the statute.
Implications of the Hoskins Decision
The S & C client note further spelled out the implications of the decision::
…[T]the Hoskins decision demonstrates an unwillingness on the part of certain courts to expand FCPA-related liability beyond the categories of persons explicitly subject to the statute. It potentially places a significant limitation on the application and extraterritorial reach of the FCPA and jeopardizes the government’s ability to charge foreign companies and individuals who have conspired to violate the FCPA, but who are not agents, employees, directors, or officers of any company that issues stock on a U.S. exchange or any other U.S. company and have not taken any action in furtherance of the FCPA violation while in the United States. Several high-profile FCPA settlements in recent years, including in connection with the TSKJ joint venture, have appeared to rely on conspiracy and complicity theories invalidated by Hoskins.
The degree to which this limitation will prove meaningful, however, remains to be seen. As the Hoskins decision makes clear, the government frequently takes an expansive view of the doctrine of agency in making its charging decisions. It is therefore possible that the government will be able to avoid the practical effect of the decision’s holding in many cases by using agency theories to charge foreign individuals and companies that otherwise would have been charged as conspirators or accomplices before Hoskins. The DOJ’s continued pursuit of such a theory against Hoskins will provide some indication of the future viability of that path as an alternative to conspiracy liability in cases in which a defendant’s agency relationship is unclear.
The WSJ notes that the DoJ will likely develop alternative theories when it brings future actions, including greater reliance on money laundering statutes:
To bring its FCPA cases, prosecutors will likely pivot toward developing evidence regarding conduct in the U.S. by foreign nationals. The government might also continue its trend of using the money-laundering statutes where applicable, according to from the firm Ropes & Gray LLP.
The ruling will likely shape the conduct of future FCPA litigation significantly. Over to the Journal again:
The ruling could affect how prosecutors handle FCPA investigations and may raise questions of whether the U.S. has jurisdiction in an FCPA case earlier in an investigation, said Mr. Urofsky, the Shearman & Sterling LLP partner.
That question, sometimes raised by defense lawyers, “now has more resonance at an earlier stage,” said Mr. Urofsky, who previously served as an assistant chief of the Justice Department’s Fraud Section. He oversaw FCPA prosecutions in that role.
It is rare for an individual to challenge the U.S. government’s assertion of jurisdiction in an FCPA case, but the appellate decision could inspire more attempts to do so, said Margot Laporte, a lawyer at the firm Richards Kibbe & Orbe LLP. “The Justice Department’s jurisdictional theories may not actually be rooted in law,” she said.
Misguided Enforcement Priorities
I’ve written before about the the Department of Justice’s (DoJ) misguided emphasis on pursuing FCPA violations at the expense of more pressing enforcement priorities, in The Obamamometer’s Toxic Legacy: The Rule of Lawlessness:
“We have to act sometimes as shoe salesmen, flogging competence in FCPA violations, that occur in subsidiaries or with foreign suppliers,” says my white collar defense specialist . “This work leads us to countries and legal systems we don’t know well, to uncover chickenshit violations that occur far from home.” Far better, he believes, would be for the DoJ to focus on law-breaking that occurs in the United States, as that could be effectively deterred by the agency refocusing its enforcement priorities.
Like the DoJ’s obsession with pursuing insider trading claims, the focus on FCPA violation provides the illusion of vigorous enforcement– at the expense of far more important enforcement priorities.
Trump DoJ Maintains Past Trend on FCPA Enforcement
Despite Trump denouncing the FCPA during the campaign as a “horrible law and it should be changed”, FCPA actions remain a top DoJ priority, as I wrote in June in More Sound and Fury: Trump Foreign Corrupt Practices Act Enforcement Record Extends Prior Trend. This stands in contrast to the course correction we’ve seen under the Trump administration for policies and enforcement at the Environmental Protection Agency (EPA), or the Consumer Financial Protection Bureau (CFPB):
So, the DoJ’s continued willingness under Trump to pursue FCPA investigations should be seen as continuing the previous DoJ trend, focusing on the wrong enforcement priorities, at the expense of more serious transgressions. In other words: more sound and fury, signifying nothing.
The Second Circuit’s Hoskins decision restricts how the government might bring further such FCPA claims, yet is unlikely to redirect the DoJ’s focus on other, more significant priorities.