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Article: February 2020: White Collar Litigation Update

Business Litigation Reports

Key Developments in the FCPA Corporate Enforcement Policy in 2019 and Assessing Potential “Agency” Exposure Post-Hoskins

 

Since its inception as a pilot program in 2016 and its formalization in November 2017, the Department of Justice’s FCPA Corporate Enforcement Policy (the “Policy”) has provided an incentive for companies to mitigate their criminal exposure under the FCPA while bolstering the DOJ’s ability to successfully prosecute individuals responsible for criminal misconduct. See Law360.com, Justice Dept. Launches FCPA Cooperation Initiative (Apr. 5, 2016).  In the two years since, the DOJ has codified certain important changes to the Policy.  In March 2019, the DOJ revised the Policy by:  (1) relaxing the prohibition against ephemeral communication and messaging platforms; (2) providing a more relaxed and business friendly position on mergers and acquisitions by giving explicit assurances that companies undergoing mergers or acquisitions can rely on policy to mitigate potential exposure; (3) providing clarity that the DOJ will not take steps to affirmatively direct a company’s internal investigation efforts, despite the DOJ’s ability to request that the company refrain from taking specific actions for de-confliction purposes; and (4) relaxing the requirement that companies must provide information on all employees “involved” in the company’s misconduct, only requiring that companies disclose individuals “substantially involved” in or “responsible for” the wrongdoing.  See Quinn Emanuel Firm Memorandum, DOJ’s Quiet Changes to the FCPA Corporate Enforcement Policy Likely to Have a Significant Impact on Corporate Investigations (Mar. 2019). And in November 2019, the DOJ announced two additional updates to the Policy:  (1) permitting self-disclosure based on preliminary investigations; and (2) clarifying that a company is only required to identify for the DOJ relevant evidence outside of the company’s possession that “it is aware of” in order to receive full cooperation credit. See JM §§ 9-47.120(3)(a), 9-47.120(3)(a),n1, and 3(b), FCPA Corporate Enforcement Policy.

However, at the same time that the government has been extending a proverbial carrot to corporate actors, it has steadily and significantly increased enforcement against individuals—actions which, de jure, result in vicarious legal liability for individuals’ employers.  The DOJ’s recent victory in the closely watched U.S. v. Hoskins case, where the government prevailed on an “agency” theory of liability against a foreign executive, is no exception and signals a continuation of aggressive individual enforcement actions.  See U.S. v. Lawrence Hoskins, Case No. 3:12-cr-238, Dkt. 538 (D. Conn., Nov. 8, 2019).

I.  The Case Against Lawrence Hoskins

In July 2013, the DOJ announced an indictment of Lawrence Hoskins, a former senior vice president of French power and transportation company Alstom S.A. (“Alstom”), for conspiring to violate the FCPA, launder money, and other substantive FCPA and money laundering violations. Dep’t of Justice, Former Senior Executive of French Power Company Charged in Connection with Foreign Bribery Scheme (Jul. 30, 2013). According to the charges, Hoskins engaged in a conspiracy to pay bribes to government officials in Indonesia in exchange for assistance in securing a $118 million contract for an Alstom subsidiary, Alstom Power Inc. of Connecticut (“Alstom CT”), and its consortium partner to build power plants in Indonesia (the “Tarahan Project”). Id.

Hoskins was not a US citizen, not employed by a US company, and apparently never set foot in the US while working for Alstom. Although prohibited from proceeding on a FCPA conspiracy/complicity theory alone (see United States v. Hoskins, 902 F.3d 69, 97 (2d Cir. 2018)), the government nevertheless put Hoskins on trial in 2019 on the theory that Hoskins acted as an agent to Alstom CT and thus may be held criminally liable because the FCPA’s prohibitions on issuers and domestic concerns apply to “any officer, director, employee, or agent of” the entity. See 15 U.S.C. §§ 78dd–1(a), 78dd–2(a); see also Hoskins, 902 F.3d at 98 (2d Cir. 2018)(emphasis added).  According to the government, Hoskins and his co-conspirators retained two consultants ostensibly to provide legitimate consulting services for Alstom CT in connection with the Tarahan project, but were in fact used to conceal the bribes to the Indonesian officials.  See Dep’t of Justice, Former Senior Alstom Executive Convicted at Trial of Violating the Foreign Corrupt Practices Act, Money Laundering and Conspiracy (Nov. 8, 2019).  Moreover, the government alleged that Hoskins and his co-conspirators retained a second consultant to “more effectively bribe” the officials, and after Alstom CT and its consortium partner secured the Tarahan project, subsequently made payments to the officials through the consultants.  See id.

II.  Application of Agency Theory in Hoskins

In order to prove that Hoskins acted as an agent to Alstom CT, US District Judge Janet Atherton required that the government show:  (1) a manifestation by the principal that the agent will act for it; (2) the agent’s acceptance of an “undertaking,” that is, “acts or services” for the principal; and (3) an understanding that the principal is “in control” of those acts or services.  Moreover, Judge Atherton clarified that “one may be an agent for some business purpose and not others,” and in this case, agency must be “in connection with the specific events related to the contract known as the Tarahan project.”

As noted above, Hoskins’s repeated rallying cry to the jury was his status as a foreign national with no meaningful contacts in the US for FCPA purposes.  To rebut that narrative, in its bid to establish agency, the government relied in part on a former senior executive at Alstom CT who managed the Tarahan project and, according to the government, helped establish that Alstom CT in fact “controlled the strategy and approach” of the deal and “called the shots.”  The government also relied on testimony from a former Alstom executive who told the jury that if Alstom CT did not agree to the terms and conditions of the payments for the consultants, Hoskins was in charge of renegotiating with the consultants on behalf of Alstom CT, despite the fact that Hoskins committed the alleged acts from “his office in Paris and hotels in Indonesia.”  After a two-week trial, including just over a day of deliberation, the jury found that Hoskins had acted as an agent of Alstom CT under Judge Atherton’s instruction and convicted him of six counts of violating the FCPA, three counts of money laundering, and two counts of conspiracy.  See U.S. v. Lawrence Hoskins, Case No. 3:12-cr-238, Dkt. 538 (D. Conn. Nov. 8, 2019).

III.  Potential Implications of Hoskins on Agency Liability

Following the Hoskins verdict, concern over the potentially vast scope of the definition of “agency” in the FCPA context swirled.  However, in fairly short order, the Assistant Attorney General for the DOJ’s Criminal Division, Brian Benczkowski, signaled that federal prosecutors do not view Hoskins as an opportunity to “stretch the bounds of agency principals beyond recognition, or even push the FCPA statute towards its outer edges.”  See Assistant Attorney General Brian Benczkowski, Remarks at the American Conference Institute’s 36th International Conference on the FCPA (Dec. 4, 2019).  Benczkowski warned, however, “if the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the Department likely would strongly favor prosecution in those instances.” Id.

Although it will take time to see how the Hoskins decision affects the DOJ’s propensity to bring FCPA enforcement actions against non-US citizens involved with entities that have minimal connections to the US, there is an undeniable trend in that direction.  Against a backdrop of aggressive individual enforcement, boards of directors, special committee members and corporate executives alike must now think more broadly about their potential corporate exposure under an agency theory of liability in light of the potentially sweeping application of Hoskins on FCPA enforcement.   If necessary, individuals with potential corporate exposure should work with experienced counsel to weigh the costs and benefits of disclosure under appropriate circumstances and to proactively address and mitigate any potential issues.