U.S. court limits application of FCPA for non-resident foreign nationals

A U.S. court has found the jurisdictional reach of the Foreign Corrupt Practices Act (FCPA) does not extend to non-resident foreign nationals when the alleged conduct takes place outside of the U.S., and without sufficient connection to a U.S. company.

On August 24, 2018, a three-person panel of the Second Circuit Court dismissed bribery charges brought against Lawrence Hoskins, an executive of French company Alstom S.A. under the FCPA. The charges were dismissed on the basis that Hoskins and the alleged criminal activities fell outside of the jurisdictional limits of the Act. In reaching this decision, the Court found that the FCPA does not apply to non-resident foreign nationals when the alleged acts of bribery take place outside of the United States, and without a sufficient connection to a U.S. company. Furthermore, liability for the conduct of such an individual cannot be found through the use of conspiracy or complicity statues.

Hoskins, a British national, was one of four executives at Alstom charged for facilitating bribery payments between 2002 and 2009 which helped the company secure a USD $118 million power plant contract in Indonesia. Hoskins worked for Alstom, while the other executives, who pled guilty to the FCPA charges, worked for Alstom's U.S. subsidiary Alstom U.S. In late 2015, Alstom S.A. pled guilty to charges under the FCPA and paid a then-record USD $772 million fine for the company’s involvement in bribery schemes in Egypt, Saudi Arabia, Taiwan and Indonesia and for falsifying internal books and records to conceal its activities. Despite the factual evidence of Hoskins’ involvement in the bribery schemes, the appeals court found that Hoskins could not be subject to criminal liability for violations of the FCPA because the alleged crimes took place outside of the U.S. and he was not sufficiently connected to a U.S. company. “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.” The decision relied on the court’s finding that the FCPA precisely defines and limits the categories of persons who may be charged for violating the provisions of the Act. The extent of the FCPA’s extraterritorial application is restricted to the provisions outlined therein.

Jurisdictional Reach of the FCPA

The decision is significant insofar as it limits the jurisdictional reach of the FCPA, which is enforced by U.S. authorities rigorously with respect to conduct across the globe. The FCPA is a far-reaching piece of legislation with broad jurisdictional powers, which makes it an offence in the U.S. to bribe foreign officials overseas. The DOJ has taken an increasingly aggressive stance in pursuing bribery cases in recent years, both in terms of fines imposed on companies and prosecutions against individuals alleged to have facilitated bribery payments. Companies subject to the Act include any ‘issuer’ under U.S. securities legislation, meaning companies who are either listed on a national securities exchange in the United States or whose stocks trade in the over-the-counter market and are required to file SEC reports are subject to the Act. This includes Canadian companies which are traded on U.S. exchanges. Companies with U.S. subsidiaries may also have exposure under the Act in certain circumstances. Companies within the jurisdiction of the Act will be liable for all conduct prohibited under the FCPA, even where all pertinent acts occurred entirely outside the U.S.

Given the broad jurisdictional approach taken by U.S. regulators, the ruling is important for Canadian companies as it demonstrates that there are some limits on the Department of Justice’s (DOJ) ability to bring FCPA claims against non-U.S. citizens for activities occurring outside of the United States. The decision in Hoskins’ case demonstrates that the mere existence of a U.S. subsidiary does not automatically establish the nexus required for individual liability under the Act when acts of bribery occur on behalf of a foreign parent company. This jurisdictional approach is similar to the Canadian decision in Chowdhury that bribery payments made by a foreign national outside of Canada are beyond the jurisdiction of the Corruption of Foreign Public Officials Act (CFPOA), Canada’s corresponding legislation. In Chowdhury, the court found the acts of the individual foreign national failed to demonstrate a ‘real and substantial connection’ to Canada and thus were outside of the scope of the CFPOA. The Hoskins decision does not definitively establish the jurisdictional reach of the FCPA with regard to the non-U.S. parent company of a U.S. subsidiary.

Moving forward, the decision in Hoskins demonstrates that U.S. courts will recognize the jurisdictional limits of the FCPA, however narrow. Canadian companies should nonetheless maintain rigorous compliance programs in order to ensure their conduct falls onside of both U.S. and Canadian anticorruption laws. Companies facing the prospect of an investigation by U.S. regulators should seek advice from counsel as to both jurisdictional issues and how to navigate compliance issues more generally.

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Editors

Lawrence E. Ritchie

Partner, Litigation

Alexander Cobb

Partner, Litigation

Shawn Irving

Partner, Litigation

Kevin O’Brien

Partner, Litigation

Lauren Tomasich

Partner, Litigation

Lia Bruschetta

Associate, Litigation