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Let’s Talk FCA: Parallel Criminal and Civil False Claims Act Proceedings

In this 13-minute episode of Let’s Talk FCA, hosts Jason Crawford and Mana Lombardo talk with Rebecca Ricigliano and Steve Byers, both partners in the firm’s White Collar & Regulatory Enforcement Group, about key considerations for navigating parallel criminal and civil False Claims Act proceedings. “Let’s Talk FCA” is Crowell & Moring’s podcast covering the latest developments with the False Claims Act.

More at Crowell & Moring

Second Circuit Limits Government’s Ability to Prosecute Foreign Nationals for Violations of the FCPA

On August 24, 2018, the US Court of Appeals for the Second Circuit stripped the government of a powerful tool used to prosecute foreign nationals under the Foreign Corrupt Practices Act of 1977 (FCPA).[[N:See 15 U.S.C. §§ 78dd-1, et seq.]] In United States v. Hoskins, a three-judge panel held that “the FCPA does not impose liability on a foreign national who is not an agent, employee, officer, director, or shareholder of an American issuer or domestic concern—unless that person commits a crime within the territory of the United States.”[[N:United States v. Hoskins, Docket No. 16-1010-cr, 2018 WL 4038192, at *23 (2d Cir. Aug. 24, 2018) (emphasis in original). Under the FCPA, an “issuer” is a company issuing securities regulated by US law, including companies registered pursuant to 15 U.S.C. § 78l or required to file reports under Section 78o(d). Id. at *4, 12 (citing 15 U.S.C. § 78dd–1(a)). A “domestic concern” refers to “any individual who is a citizen, national, or resident of the United States,” regardless where that person is in the world. Id. (quoting 15 U.S.C. § 78dd–2(h)(1)(A)). ]] Under the court’s ruling, a foreign national who works for a non-US company that does not issue securities in the United States and who never steps foot on US soil cannot be charged with conspiracy to violate the FCPA or aiding and abetting a violation of the FCPA.

Judge Learned Hand famously wrote that conspiracy law is the “darling of the modern prosecutor’s nursery.”[[N:Harrison v. United States, 7 F. 2d 259, 263 (2d Cir. 1925).]] To be sure, conspiracy law broadens the federal prosecutor’s power significantly. But, as the Second Circuit’s much-anticipated decision in Hoskins now shows, the scope of conspiracy is not without limits. At least in the FCPA context, US conspiracy law can no longer sweep in foreign nationals who neither work for a US company nor physically present in the United States, which could have a dramatic impact on FCPA enforcement. This opinion, however, should not be seen as providing a safe haven for bribery abroad by foreign nationals, especially as anti-bribery enforcement continues to ramp up in many countries across the globe. In the end, the best practice for companies is to maintain a culture and robust compliance program geared toward snuffing out corruption before it happens.

Background of Hoskins

The defendant, Lawrence Hoskins, is a British citizen who had worked for Alstom Resources Management, a French subsidiary of Alstom S.A. (Alstom), also a French company.[[N:Hoskins, 2018 WL 4038192 at *1, 29.]] US prosecutors alleged that Hoskins participated in a scheme from 2002 to 2009 to use “two consultants to bribe Indonesian officials who could help secure [an] $118 million power contract” for Alstom and its associates.[[N:Id. at *1.]] While many of the allegations center on Alstom’s US subsidiary and actions that took place in the United States, the government did not allege that Hoskins ever worked for the US subsidiary in a direct capacity or that he was physically present in the United States during the relevant time period.[[N:Id. at *1-2.]]

The operative indictment charged Hoskins with conspiracy to violate, and substantive violations of the FCPA. In addition to alleging that Hoskins acted as an agent of an American company, the government alleged that he was independently liable for conspiring with the company and its employees, as well as foreign persons, to violate the FCPA, and also for aiding and abetting their violations.[[N:Id. at *2.]] In 2015, a federal judge in the District of Connecticut dismissed the portions of the indictment charging that, regardless of whether Hoskins was an agent of a US company, he had conspired to violate and aided and abetted a violation of the FCPA.[[N:United States v. Hoskins, 123 F. Supp. 3d 316 (D. Conn. 2015).]] The government appealed this dismissal, and the appeal was argued in March 2017.[[N:On December 22, 2014, the Justice Department announced that Alstom pleaded guilty and agreed to pay a $772 million criminal penalty to resolve charges relating to tens of millions of dollars in bribes paid to government officials in countries around the world. As part of the settlement, two US subsidiaries of Alstom entered into deferred prosecution agreements, admitting that they conspired to violate the anti-bribery provisions of the FCPA. See Press Release, DOJ, Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges (Dec. 22, 2014).]]

The Second Circuit’s Ruling

On August 24, 2018, nearly 18 months after hearing oral argument, a three-judge panel of the Second Circuit affirmed the District Court’s dismissal of the conspiracy and aiding-and-abetting charges. The Court framed the “central question of the appeal” as “whether Hoskins, a foreign national who never set foot in the United States or worked for an American company during the alleged scheme, may be held liable, under a conspiracy or complicity theory, for violating FCPA provisions.”[[N:Hoskins, 2018 WL 4038192 at *5.]]

The Court applied the teaching from Gebardi v. United States, 287 U.S. 112 (1932), “that conspiracy and complicity liability will not lie when Congress demonstrates an affirmative legislative policy to leave some type of participant in a criminal transaction unpunished.”[[N:Id. at *9.]] Following a detailed analysis of the FCPA’s legislative history, the Second Circuit found “an affirmative legislative policy to leave the category of defendants omitted from the statutory framework unpunished.”[[N:Id. at *11]] The Court concluded that:

the carefully tailored text of the statute, read against the backdrop of a well-established principle that U.S. law does not apply extraterritorially without express congressional authorization and a legislative history reflecting that Congress drew lines in the FCPA out of specific concern about the scope of extraterritorial application of the statute, persuades us that Congress did not intend for persons outside of the statute’s carefully delimited categories to be subject to conspiracy or complicity liability.[[N:Id.]]

The Second Circuit panel further explained how, under the Supreme Court’s 2016 decision in RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016), the presumption against extraterritoriality required the District Court to dismiss the conspiracy and complicity charges against Hoskins, even though the FCPA is intended to have extraterritorial reach.[[N:Id. at *23-24; see also RJR Nabisco, 136 S. Ct. at 2102.]] The panel reasoned that the extraterritorial provisions of the FCPA are limited to their own terms and that the extraterritorial reach of ancillary offenses like aiding and abetting or conspiracy are coterminous with that of the underlying statute.[[N:Hoskins, 2018 WL 4038192 at *23.]] Still, the panel allowed the government to pursue its theory that Hoskins acted as an agent of a “domestic concern,” liable as a principal for substantive violations of the FCPA.[[N:Id. at *1.]]

The Second Circuit summarized the categories of persons over whom the government may exercise jurisdiction pursuant to the FCPA as follows:

  1. American citizens, nationals, and residents, regardless of whether they violate the FCPA domestically or abroad;
  2. most American companies [including foreign issuers of securities in the United States], regardless of whether they violate the FCPA domestically or abroad;
  3. agents, employees, officers, directors, and shareholders of most American companies, when they act on the company’s behalf, regardless of whether they violate the FCPA domestically or abroad;
  4. foreign persons (including foreign nationals and most foreign companies) not within any of the aforementioned categories who violate the FCPA while present in the United States.[[N:Id. at *13.]]

Judge Lynch, who joined the panel decision, authored a concurrence to state why he regards this is a “close and difficult case.”[[N:Id. at *25.]] While expressing concerns about extraterritorial application of US law, he noted that court’s decision may lead to a “perverse result, and one that is unlikely to have been anticipated or intended by Congress,” namely, “to permit the prosecution of foreign affiliates of United States entities who are minor cogs in the crime, while immunizing foreign affiliates who control or induce such violations from a high perch in a foreign parent company.”[[N:Id. at *29.]]

Takeaways

The recent Hoskins decision punctuates a rare litigation of an FCPA case and presents a defeat for the government’s expansive theory of FCPA liability. The Second Circuit followed a trend of expressing concern about potential overreach of US law beyond US borders, and highlighted that the presumption against extraterritoriality is alive and well, even in the context of statutes that clearly have extraterritorial reach. As a result, Hoskins offers new potential defenses to foreign nationals being investigated (or awaiting trial) for FCPA violations. Foreign nationals accused of conspiring to violate or aiding and abetting a violation of other US laws may seek to benefit from Hoskins as well.

The law remains clear, however, that American companies and foreign issuers of securities in the United States remain subject to the FCPA, regardless of where misconduct takes place. And authorities in other countries—both in coordination with US authorities and independently—are showing a willingness to prosecute corruption. Accordingly, companies should strive to maintain a corporate culture and robust compliance program that prevents corruption before it takes place.

© Arnold & Porter Kaye Scholer LLP 2018 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

Read the full post at Arnold & Porter Kaye Scholer

Ninth Circuit Reaffirms Group Pleading Standard in FCA Cases

The Ninth Circuit recently revived a False Claims Act suit against Medicare Advantage Organizations related to risk adjustment payments for Medicare Advantage plans in U.S. ex rel. Silingo v. WellPoint Inc. et al.

In this case, the district court dismissed the relator’s claims against the defendant MAOs, primarily as impermissible “group-pleading,” because the relator failed to allege the specific conduct of each MAO.  The Ninth Circuit disagreed, finding that the relator sufficiently “pleaded a wheel conspiracy-like fraud in which [the company that contracted with the MAOs] was the ‘hub’ and the defendant MAOs were the ‘spokes,’” and that they played “the exact same role” in the alleged scheme.

Read the full post at Bass Berry & Sims

Second Circuit Holds that FCPA Does Not Apply to Foreigners Without U.S. Ties

In United States v. Hoskins, the Second Circuit affirmed the district court’s ruling that the government cannot use accomplice or conspiracy liability to extend liability beyond the categories of persons who may be charged under the FCPA. In other words, a person may not be guilty as an accomplice or co-conspirator for an FCPA crime that he is incapable of committing as a principal.

Rather, the Second Circuit concluded that the FCPA establishes three categories of persons who are covered by its provisions:

  1. issuers of registered securities, or any officer, director, employee, or agent of such issuer, or any stockholder acting on behalf of the issuer, using interstate commerce in connection with the payment of bribes;
  2. American companies or American persons using interstate commerce in connection with the payment of bribes; or
  3. foreign persons or businesses taking acts to further certain corrupt schemes, including ones causing the payment of bribes, while present in the United States.

The court held that the FCPA contained an Affirmative-Legislative-Policy exception that provides that accomplice liability does not extend to certain persons when the structure of a legislative scheme makes clear that the legislature did not intend to extend accomplice liability to a person who ordinarily would fall within the common law or statutory definition of complicity.

More at Ropes & Gray

Leniency Programs Proliferate. For Better or Worse?

Mona Caroline Chammas writes about leniency programs such as amnesty programs and deferred prosecution agreements, which she says have been “the most successful and effective enforcement strategy tool, leading to its widespread adoption worldwide,” but wonders about their continued incentivization and effectiveness.

More at FCPA Blog

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