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DOJ Assistant AG Benczkowski Discusses Use of Agency Liability Theory in FCPA Prosecutions

December 09, 2019

Assistant Attorney General Brian Benczkowski delivered remarks on December 4 at the American Conference Institute’s 36th International Conference on the Foreign Corrupt Practices Act. AAG Benczkowski addressed the US Department of Justice’s use of agency as a theory of liability in the prosecution of Lawrence Hoskins, but noted that the theory has limits.

Significantly, AAG Benczkowski said in his remarks that the instructions defining the term “agent” provided to the jury that ultimately convicted Lawrence Hoskins for violations under the Foreign Corrupt Practices Act (FCPA) were the correct statement of FCPA agency law—and the statement that the US Department of Justice (Department) would be using. He said that “[b]efore pursuing an FCPA case based on an agency theory, whether as to an individual or a company, the Department will need to measure the facts against the legal standard articulated by the court. And our prosecutors will need to be confident that their evidence will be able to carry the government’s burden of proof at trial. These are no small things.”

United States v. Hoskins

Specifically, the judge in the district court instructed the jury that an agency relationship must include (1) “a manifestation by the principal that the agent will act for it,” (2) acceptance by the agent of the “undertaking” (meaning acts or services for the principal), and (3) an understanding between the agent and the principal that the principal is “in control” of those acts or services. The judge further clarified for the jury, and AAG Benczkowski reiterated in his remarks, that a “person or entity may be an agent for some business purposes and not for others.” What mattered was whether Hoskins was an agent in connection with the bribery scheme.

As background, Hoskins, a UK national, was an executive at Alstom’s European subsidiary. Hoskins was prosecuted under the FCPA for participating in a bribery scheme to procure a multimillion-dollar contract for Alstom’s US subsidiary. The government’s action against Hoskins was largely unprecedented because he was not a US citizen, he was not employed by a US company, and his conduct never touched US territory.

The Department initially used an agency theory of liability to charge Hoskins under the FCPA, later adding additional counts of conspiracy and accomplice liability. The Department did this in an effort to convict Hoskins even if the jury were to find that he was not an agent of Alstom US. Hoskins argued that the FCPA did not apply to him because he was a nonresident foreign national acting outside the United States, and he, therefore, could not be charged with conspiracy or complicity statutes that he otherwise could not be charged with as a principal. The district court agreed and partially granted Hoskins’s motion to dismiss. In August 2018 on an interlocutory appeal of the district court’s partial dismissal, the US Court of Appeals for the Second Circuit held that a “foreign national who is not an agent, employee, officer, director or shareholder of an American or domestic concern” and does not commit a crime “within the territory of the United States” cannot be prosecuted under the FCPA.[1] The court concluded that Congress intentionally excluded from FCPA jurisdiction “persons in Hoskins’s position” or “foreign national[s] who act[] outside the United States, but not on behalf of an American person or company as an agent, office, director, employee, or stockholder.”[2] The court indicated that its decision may lead to unjust results, as “low level foreign nationals who act as agents of U.S. companies to channel bribes” may be held liable while “foreign nationals who control, induce, or supervise such violations by American companies” escape liability.[3]

Although the Second Circuit affirmed the district court’s partial dismissal, multiple charges of substantive FCPA violations remained. In light of the Second Circuit’s decision, the trial court looked to traditional agency law principles and instructed the jury that to convict Hoskins, they must find sufficient evidence of an agency relationship between Hoskins and Alstom US, which included control by the principal (Alstom US). Ultimately, the jury found that Hoskins was an agent and convicted him of six counts of violating the FCPA, in addition to one count of conspiracy to violate the FCPA and other counts.

December 4 Remarks

Hoskins’s conviction understandably generated concern among companies over how broadly the Department would prosecute FCPA misconduct under an agency theory. In his remarks, AAG Benczkowski stated that using agency principles is neither controversial nor novel, as the FCPA explicitly applies to “conduct by ‘any officer, director, employee, or agent’ of entities.” He further stated that the Second Circuit agreed that the use of agency principles in Hoskins fit “squarely within the terms of the statute.”

AAG Benczkowski emphasized that the “Department is not looking to stretch the bounds of agency principles beyond recognition, or even push the FCPA statute towards its outer edges.” He made clear that the Department will not go so far as to consider every subsidiary, joint venture, or affiliate an agent of the parent company merely based on ownership status. Further, he stated that the Department, based on an agency theory, will not automatically impute liability to a parent company for the actions of its subsidiaries, joint ventures, or affiliates.

AAG Benczkowski also highlighted the role of prosecutorial discretion as an institutional safeguard. He reiterated the factors a prosecutor must evaluate in every case in determining whether to bring an enforcement action: “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 remedial actions.” Nevertheless, AAG Benczkowski asserted that the Department would “strongly favor prosecution” if evidence revealed 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.”

Takeaways

AAG Benczkowski provides companies cold comfort that the Department is not looking to use the Hoskins decision to expand the scope of the FCPA. Nonetheless, companies and individuals will need to wait and see how the Department uses its discretion in practice when applying agency liability under the FCPA. Further, because the FCPA fails to define the term “agent,” courts have flexibility when instructing a jury how to evaluate whether an individual qualifies as an agent under the FCPA. In fact, it would be unsurprising if Hoskins were to ask the Second Circuit to review the district court’s jury instructions on appeal. The Department’s success in using agency theory will ultimately turn on how a jury is instructed, the facts specific to each case, and how convincing the facts are to the jury. With the government given this opportunity to use the FCPA against companies and individuals with a potentially attenuated nexus to the United States, it is all the more important that companies, both inside and outside the United States, ensure they have the necessary anticorruption safeguards in place.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Philadelphia
Nathan J. Andrisani
Meredith S. Auten
John C. Dodds
Lisa C. Dykstra
Rebecca J. Hillyer
Matthew J.D. Hogan
Eric Kraeutler
Ryan P. McCarthy
Zane David Memeger
John J. Pease, III
Kenneth A. Polite, Jr.
Shevon L. Scarafile
Margaret Erin Rodgers Schmidt
Eric W. Sitarchuk

Beijing
K. Lesli Ligorner

Boston
Carl A. Valenstein

Chicago
Tinos Diamantatos

Dubai
Rebecca L. Kelly

London
Melanie Ryan
Chris Warren-Smith

Miami
Alison Tanchyk

Moscow
Vasilisa Strizh

New York
Kelly A. Moore
Martha B. Stolley

Shanghai
Todd Liao

Singapore
Daniel Chia

Washington, DC
Douglas W. Baruch
Giovanna M. Cinelli
Kenneth J. Nunnenkamp
Jennifer M. Wollenberg



[1] Morgan Lewis LawFlash, No Accomplice, Conspiracy Liability for Certain Foreign Nationals in FCPA Crimes (Aug. 29, 2018).

[2] Id.

[3] Id.