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FCPA's extraterritorial reach narrowed but enforcement risk remains

​The circumstances in which a non U.S. person or company may be prosecuted under the main U.S. anti-corruption legislation (the Foreign Corrupt Practices Act (FCPA)) has been narrowed in a recent U.S. Court of Appeals for the Second Circuit ruling. However, the ruling is unlikely to alter the pattern of FCPA enforcement against non-U.S. companies as it does not prevent the prosecution of non-U.S. persons who act as agents of U.S. companies or issuers, regardless of where the conduct occurs. Furthermore, in light of the increased enforcement by non U.S. regulators of anti-corruption laws and cooperation among global anti-corruption enforcement agencies, multi national companies should continue efforts to prevent, detect, and remediate potential bribery-related conduct wherever it occurs.

Prosecution of non-U.S. companies and individuals under the FCPA

The FCPA, which prohibits making improper payments to foreign public officials for a business benefit or advantage, has been a top enforcement priority of the DOJ and SEC. Since the FCPA’s enactment, the SEC and DOJ have collectively brought 540 FCPA actions.1 Approximately 180 of these enforcement actions were targeted at foreign companies and nationals, including in circumstances where little or no relevant conduct occurred in the United States.2

The DOJ and SEC have jurisdiction under the FCPA only over the following persons and conduct:
− U.S. citizens, U.S. nationals, U.S. residents, and U.S. companies (domestic concerns), regardless of whether the conduct is domestic or abroad;
− U.S. and non-U.S. companies with securities listed on a U.S. exchange and that have periodic reporting obligations to the SEC (issuers), regardless of whether the conduct is domestic or abroad;
− agents, employees, officers, directors, and shareholders of U.S. companies or issuers, when they act on the company’s behalf, regardless of whether the conduct is domestic or abroad; and
− foreign persons (foreign nationals and companies) who violate the FCPA while present in the United States.

Controversial ‘accessory liability’ used by prosecutors against non U.S. parties

One of the more controversial ‘extra-territorial’ arguments relied on by U.S. prosecutors is that accessorial liability may be applied over a non-U.S. person who would not otherwise be subject to the FCPA. For example, in 2012 a Japanese energy company (the Company), paid the DOJ over USD54 million in criminal penalties to resolve FCPA charges in circumstances where there was no jurisdiction absent accessorial liability.3 The allegations related to bribes paid by a joint venture in Nigeria, which was created for the purpose of bidding on and, if successful, designing and building a liquefied natural gas plant. The relevant conduct did not occur in the United States, but one of the joint venture partners was a U.S. company. The DOJ asserted jurisdiction over the Company and the Japanese sales agent through whom bribes were funnelled, on the basis that they had aided and conspired to violate the FCPA with a domestic concern. The case culminated in a Deferred Prosecution Agreement. Indeed, because such cases are often resolved by settlement, the jurisdictional theories pursued by the enforcement agencies are rarely subject to judicial scrutiny – until Hoskins.

U.S. v Hoskins – action against a UK individual

In Hoskins, the DOJ alleged that Lawrence Hoskins, a UK citizen, employed by a UK subsidiary of a French parent company, was involved in a scheme to pay bribes to Indonesian public officials for a U.S. subsidiary (of the same parent company) to win a USD118m government contract in Indonesia.4 It was alleged that Hoskins approved the selection of and payments to third-party consultants who were retained to pay the bribes.5 Hoskins was not an employee of the U.S. subsidiary and never travelled to the U.S. while the bribery scheme was on going – his closest geographic connection was that he called and emailed U.S. based co conspirators while they were in the United States.6

The charges against Hoskins included that he acted as an agent of the U.S. company and that, independent of his agency relationship, that he also conspired with the U.S. company, its employees, and foreign persons to violate the FCPA, and aided and abetted their violations of the FCPA.7 These charges rely on independent criminal statutes for aiding and abetting the commission of illegal acts by another, and conspiring with another to commit an offense.8
The narrow question on appeal was whether Hoskins could be charged for conspiring to violate the FCPA or aiding and abetting others’ alleged FCPA violations where there was no jurisdictional nexus over his actions.9

Appeal Court rules no jurisdiction based on accessory liability

The Court affirmed the district court’s decision to dismiss those claims, relying in the first instance on the text of the statute, which “defined precisely” the categories of persons who may be charged for violating its provisions and states clearly the extent of its extraterritorial application.10

The Court found that Congress’s choice to define precisely the persons covered by the FCPA was in contrast to an earlier draft that primarily relied upon conspiracy and complicity theories of liability.11 Further, the Court found that Congress narrowly circumscribed the FCPA’s application to foreign nationals acting within the United States out of concern to take a “delicate touch where extraterritorial conduct and foreign nationals were concerned.”12

The Court also relied upon the presumption against extraterritorial application.13 Even if it could be argued that the text and legislative history were not clear that the FCPA’s reach over foreign nationals was limited, the Court rejected the government’s position as it would “transform the FCPA into a law that purports to rule the world.”14 The Court found that the extraterritorial application of the ancillary offenses of aiding and abetting and conspiracy should be coterminous with the underlying criminal statute.15  The Court’s rejection of expansive interpretations of the conspiracy and complicity statutes as applied to the FCPA was at least in part due to a recognition of those laws’ potential for overreach, noting that the conspiracy and complicity statutes are “among the broadest and most shapeless of American law, and may ensnare persons with only a tenuous connection to a bribery scheme.”16

Hoskins not out of trouble yet though

The Court’s ruling is narrow and leaves open the possibility that Hoskins could be found liable under the FCPA if he acted as an agent of the U.S. company.17 The Court found that such an interpretation is squarely within the confines of the statute, consistent with legislative history, and there is no extraterritorial application that arises if Hoskins were an agent of the U.S. company acting entirely abroad.18  In a concurring opinion, Circuit Judge Gerard E. Lynch noted that leaving intact the agency theory of jurisdiction while eliminating the reliance on accessory liability claims creates a perverse result – a foreign national who is an agent of a U.S. company may be found liable under the FCPA, but a foreign national who is the mastermind of the bribery scheme or directs a U.S. person to pay a bribe in a foreign jurisdiction may not be if none of the foreign national’s actions occur in the U.S.19

Implications – FCPA enforcement against non U.S. persons and companies likely to continue

Hoskins is unlikely to have a meaningful impact on continued FCPA enforcement against non U.S. companies and persons.

First, the decision applies narrowly to accessorial liability and the majority of FCPA actions against foreign companies do not rely on accessorial liability as the sole basis for jurisdiction. Typically such cases fall into two categories: (i) actions against non U.S. companies in overseas joint ventures with a domestic concern or issuer; and (ii) actions against non-resident non-U.S. nationals that oversaw or overlooked improper conduct by a U.S. subsidiary, business partner or agent.

Second, the decision leaves intact the FCPA’s defined scope of liability for foreign nationals who: (i) act on American soil; (ii) are officers, directors, employees or shareholders of U.S. companies; or (iii) are agents of U.S. companies.

Third, Hoskins does not offer any protection against the growing trend of anti-corruption enforcement by non-U.S. regulators. Foreign regulators are no longer content to allow the U.S. alone to collect large penalties in anti-corruption investigations. In addition, the DOJ and SEC regularly coordinate enforcement efforts with its counterparts in the UK, France, Germany, Switzerland, the Netherlands, Brazil, and others. In recent months, the DOJ has announced its first coordinated settlements with authorities in France and Singapore. This trend of non-U.S. enforcement and cooperation between regulators is only likely to increase.

In short, although Hoskins limits U.S. jurisdiction when relying solely on statutes other than the FCPA, this decision does not alter the corruption risk calculus for companies operating in high-risk markets. U.S. and non-U.S. companies should continue to take efforts to detect, prevent, and remediate bribery-related conduct.

Footnotes:
1 See Stanford Law School Foreign Corrupt Practices Act Clearinghouse, Key Statistics. See Stanford Law School Foreign Corrupt Practices Act Clearinghouse, Key Statistics.
2 See id., Enforcement Actions.
3 U.S. v. Marubeni Corp., Deferred Prosecution Agreement, 12 cr 00022 (Jan. 17, 2012).
4 Id.
5 Id. at *6.
6 Id. at *6 – 7.
7 Id. at *7.
8 Id. at *8.
9 18 U.S.C. §§ 2(a) and 371.
10 Id. at *4.
11 Id. at *5.
12 Id. at n. 1.
13 Id. at *44.
14 Id. at *43.
15 Id. at *65 – 70.
16 Id. at *59.
17 Id. at *68.
18 Id. at *65.
19 Id. at n.1.

Further information

This article is part of the Allen & Overy Legal & Regulatory Risk Note, a quarterly publication.  For more information please contact Karen Birch – karen.birch@allenovery.com, or tel +44 20 3088 3710.

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