FCPA Agency Theory Post-Hoskins Takes the Spotlight at FCPA Conference
The recent bribery conviction of British citizen Lawrence Hoskins created a stir among white collar practitioners because it showed that the US Department of Justice (“DOJ”) could be successful using an agency theory to prosecute individuals or entities that are outside the traditional jurisdiction of U.S. prosecutors. Last Thursday, December 5, however, Assistant Attorney General Brian Benczkowski gave a speech at the American Conference Institute’s 36th International Conference on the FCPA, in which he suggested that DOJ does not intend to push the bounds of its jurisdictional reach and, importantly, reinforced that there are limits to how far DOJ might push the agency theory.
Hoskins, a former Senior VP at Paris-based Alstom SA, was convicted on November 8, 2019 on six counts of violating the FCPA.1 He did not fit squarely within any of the FCPA’s three general categories of actors, which are: (i) issuers of securities2; (ii) domestic concerns (U.S. citizens and entities)3; and (iii) those who act in furtherance of a bribery scheme on U.S. soil.4 As an individual, he was clearly not an issuer of securities nor a domestic concern, and, importantly, none of his relevant actions took place within the United States.
Despite this, DOJ initially pursued a theory that Hoskins should be held liable for conspiring with entities that are within the FCPA’s reach, even if Hoskins himself was not. Before trial, the Second Circuit rejected that theory, holding that someone who is incapable of committing the FCPA violation as a principal cannot be held liable under a conspiracy or complicity theory.5 The court emphasized that there are “carefully-drawn” categories of persons or entities subject to the FCPA. But the court did, however, allow DOJ to pursue FCPA charges based on the alternative theory that Hoskins had acted as an agent of a domestic concern, stating that the statute expressly covers officers, directors, employees, and agents of each category.6
Hoskins’ ultimate conviction hinged on him qualifying as an “agent” of an Alstom subsidiary in Connecticut. Hoskins was not an employee of the subsidiary; rather, he had hired a pair of consultants who were involved in delivery of the bribes in question to Indonesian officials. Hoskins’ conviction on these facts has raised concerns among the white-collar defense bar regarding attenuated agency-based FCPA cases and the potential for DOJ to take a broad view of what constitutes an agency relationship. In his speech, Benczkowski acknowledged such concerns and sought to clarify DOJ’s approach to agency-based cases.
Benczkowski stated that to demonstrate an agency theory of the bribery scheme, DOJ must show that the defendant was an agent “in connection with the specific events related to the project at issue.” He reportedly stated that “Hoskins does not represent a blank check to the department” and that the DOJ “is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute towards its outer edges.”
Perhaps more importantly to those who represent entities in FCPA matters, Benczkowski added that DOJ will not take the position that “every subsidiary, joint venture, or affiliate is an ‘agent’ of the parent company simply by virtue of ownership status.” Nor will it assert that “every parent company should automatically be held liable for the acts of its subsidiaries, joint ventures, or affiliates based on an agency theory.” Instead, Benczkowski stated that DOJ recognizes that “the law requires more.”
Agency theory has been an important tool for DOJ and SEC to reach conduct that occurs at overseas subsidiaries, often several layers separated from the U.S. entity or issuer, and impute it to the parent entity. Prior settlements with government agencies have presented a wide range of possible factual circumstances that allegedly support entity agency theories, some more attenuated than others. For example, In the Matter of SciClone Pharm., the SEC imputed anti-bribery violations to a U.S.-based parent of a wholly owned subsidiary in China because of multiple agency-related factors, including the appointment of directors and officers; overseeing legal, audit and compliance functions; reviewing and approving certain of the budgets; and overlapping officers and directors. In SEC – Ralph Lauren Corp., however, liability was imputed to a U.S. parent entity based just on the hiring of a subsidiary’s general manger, who was then alleged to be an agent of the parent. DOJ’s public acknowledgment that this theory has limits and Benczkowski’s statement that there must be stronger connections than mere ownership may provide some comfort in a post-Hoskins world.
The Hoskins case may provide additional guidance on what “more” is required. After his conviction, Hoskins filed a still-pending motion for acquittal or, in the alternative, a new trial.7 Hoskins argued, among other things, that the government failed to prove beyond a reasonable doubt that he acted as an agent of a domestic concern. In particular, at trial, the court’s agency instruction required the government to establish three elements: (1) “a manifestation by the principal that the agent will act for it”; (2) “acceptance by the agent of the undertaking”; and (3) “an understanding between the agent and the principal that the principal will be in control of the undertaking.”8 The court further instructed that “[t]he undertaking consists of the acts or services which the agent performs on behalf of the principal.”9 Hoskins’ arguments focus primarily on the element of control. The anticipated order resolving this motion (or potentially its appeal to the Second Circuit) may yet provide additional guidance on the meaning of control.
And even where evidence supports a finding of control and an agency relationship, Benczkowski reminded us that DOJ will still examine whether to exercise its prosecutorial discretion. Factors relevant to this determination include “the nature and seriousness of the offense, the pervasiveness and involvement of high-level executives in the misconduct, and whether the company voluntarily disclosed the misconduct, fully cooperated, and took timely and appropriately remedial actions.” But, Benczkowski warned, if DOJ finds “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,” then it will likely “strongly favor prosecution.”
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1 See Jury Verdict, United States v. Hoskins, No. 3:12-cr-238, Dkt. No. 583 (D. Conn.). Hoskins’ motion for acquittal or, in the alternative, a new trial is pending.
2 15 U.S.C. § 7dd-1.
3 15 U.S.C. § 7dd-2.
4 15 U.S.C. § 7dd-3.
5 United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018).
6 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3.
7 See United States v. Hoskins, No. 3:12-cr-238, Dkt. No. 589 (D. Conn).
8 Id. at 7.