During the financial crisis, government enforcement agencies started taking a hard look at Wall Street institutions, and these days a company must respond proactively and dynamically when addressing the challenges of government investigations and litigation. Perkins Coie’s Adam H. Schuman and Kraft Heinz’s Prasanth R. Akkapeddi detail some key takeaways for both in-house and outside counsel.
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In United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018) the Second Circuit held that a non-resident foreign national cannot be criminally liable for aiding and abetting or conspiring to violate the FCPA unless the government can establish that such an individual acted as an agent of one of the categories of persons subject to liability as a principal.
Background
The DOJ charged Lawrence Hoskins, a British national and former Alstom UK executive based in Paris, with FCPA and money-laundering violations. The government alleged that Hoskins had approved payments to consultants that were funneled to Indonesian officials to secure a $118 million infrastructure contract with a state-owned power company. Hoskins was never physically present in the U.S., but he called and emailed alleged conspirators who themselves were present in the U.S., and Hoskins authorized payments from Alstom S.A. to the consultants, one of whom had a Maryland bank account.
Hoskins moved to dismiss charges alleging indirect FCPA violations—i.e., that he aided and abetted or conspired to violate the FCPA—arguing that he did not fall within the narrowly-circumscribed group of people for whom the FCPA prescribes liability: American companies, citizens, and their employees and agents, as well as foreign persons acting on American soil. The lower court agreed with Hoskins and dismissed Count I of the indictment. On appeal, the question for the Second Circuit was whether Hoskins could be charged as either a conspirator or an accomplice to the asserted FCPA violations, despite not falling within the categories of persons subject to liability as a principal. The Second Circuit concluded that the statute’s text, combined with its legislative history and the presumption against extraterritoriality, compelled the conclusion that foreign nationals who act abroad and lack a direct connection to one of the categories of persons subject to principal FCPA liability cannot be liable as accomplices or conspirators.
Agency Liability Post-Hoskins
Hoskins creates some uncertainty regarding FCPA prosecutions of individuals or entities who could not be charged as principals. The decision creates a stronger jurisdictional defense for companies that are subject to DOJ or SEC actions solely based on their business association with a U.S. concern. Under the Second Circuit opinion, it will take more than mere conspiracy or assistance to bring such entities within the scope of liability.
It is also likely that investigators will put more emphasis on developing evidence of agency relationships between principal violators and entities otherwise unreachable under Hoskins. Indeed, the court in Hoskins held that the government could present agency evidence and pursue Hoskins as an agent of, for example, Alstom S.A.’s U.S.-based subsidiary. Prosecutors may also attempt to broaden the traditional definitions of agency under the FCPA, particularly as agency theory becomes a critical link to reach now unreachable defendants. Continue Reading
Federal sentencing guidelines for economic crime have long been subject to criticism due to high dollar loss amounts that can produce eye-popping prison terms.
Adding to the fodder, a new report issued by the United States Sentencing Commission found that securities and investment fraud offenders received the longest average sentences under the U.S. Sentencing Guidelines—more than twice as long as the average sentence for all economic crime offenders. The report, What Does Federal Economic Crime Really Look Like?, analyzes sentences imposed under § 2B1.1 of the Guidelines, which is the section that applies to most financial fraud cases, including those involving securities, bank, mail and wire fraud, money laundering, and conspiracy.
The report is chock full of data, but one of the Commission’s big-picture findings was that the average sentences for 29 categories of economic crime vary significantly. Not surprisingly, the report ties these variations to certain guideline enhancements, including loss amounts. For example, the report notes that in 2017, the median loss amount for securities and investment fraud was $2,105,620, a loss amount that corresponds to a 16-level increase under the Guidelines. This enhancement is substantially higher than any other specific offense type analyzed in the report. Continue Reading
On December 26, 2018, the Securities and Exchange Commission (“SEC”) announced a settlement with communications technology firm Polycom, Inc. (“Polycom” or the “Company”) for violating the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with a scheme to bribe Chinese government officials. Under the settlement, Polycom agreed to pay the SEC approximately $12.5 million in disgorgement and prejudgment interest and a civil money penalty of $3.8 million. The Polycom settlement illustrates the liability that can arise from reliance on third-party agents such as distributors, but—as explored below—also presents a missed opportunity for the SEC to provide some clarifying guidance for companies looking to avoid similar outcomes. Continue Reading
This three-part series, written by recent in-house counsel and former federal prosecutors, aims to help legal and compliance teams avoid missteps that can lead to aggressive government responses. In part three, the authors explain the tools for understanding the enforcement process and conducting internal investigations. Click here to read the full article.
This series, written by recent in-house counsel and former federal prosecutors, aims to help in-house legal and compliance teams avoid the types of seemingly minor or inconsequential missteps that can lead to aggressive government responses, including parallel civil and criminal investigations.
In part two, the authors explain what to do when a search warrant is served and how to prepare for government interviews with employees. Click here to read the full article.
On December 20, 2018, President Trump signed the Agriculture Improvement Act of 2018 (popularly known as the 2018 Farm Bill) into law.
In this update, we review the 2018 Farm Bill and the implications for those participating in the hemp and CBD industries.
This series, written by recent in-house counsel and former federal prosecutors, takes a practical approach to helping in-house legal and compliance teams operating in a world of complex regulatory schemes and increased whistleblower activity. It specifically aims to address how to avoid the types of seemingly minor or inconsequential missteps that can lead to aggressive government responses, including parallel civil and criminal investigations.
In part one, the authors focus on the initial steps, including assuring the company has competent and experienced outside counsel at the ready to supplement the in-house team. Click here to read the full article.
On June 28, 2018, the U.S. Securities and Exchange Commission proposed three rule changes to the Commission’s Whistleblower Program, including one that would authorize the SEC to “downward adjust” monetary awards in large actions for which an award might “exceed an amount that is reasonably necessary to advance the program’s goals”—in the view of the Commission. The proposed change prompted an immediate response from Commissioner Kara Stein who issued a separate Statement on Proposed Amendments to the Commission’s Whistleblower Program Rules (“Statement”) in which she highlights concerns that a move towards a more subjective standard in determining monetary awards could threaten a whistleblower’s incentive to come forward, given the added uncertainty in outcome. Additionally, Stein questions whether the SEC has the statutory authority under the Dodd-Frank Act to alter the rules impacting awards in this way. Continue Reading
On June 21, 2018, the Supreme Court issued its highly anticipated opinion in Lucia v. SEC, finding that the manner in which the U.S. Securities and Exchange Commission (SEC) selects its “in-house” administrative law judges (ALJs) violates the Appointments Clause of the Constitution. In a 7-2 decision, the Court held that ALJs are “inferior officers” and must be appointed by the president or head of the agency, rather than hired by SEC staff through the civil service process. The immediate practical impact of the decision requires that petitioner Raymond Lucia be afforded a new hearing before “a properly appointed official.”
In recent years, capitalizing on what some commentators considered a “home court advantage” for enforcement actions, the SEC began favoring administrative proceedings in which agency ALJs serve as adjudicators rather than judicial proceedings in federal court. An ALJ assigned to hear an SEC enforcement action has the power to issue an initial decision containing factual findings, legal conclusions, and appropriate remedies. The Commission is not required to review the ALJ’s decision, and if it declines to review, the ALJ’s “initial” decision is deemed a final action of the Commission. In practice, most ALJ initial decisions become final without any Commission review; for example, 2016 data revealed that 90% of SEC ALJ initial decisions were not reviewed by the Commission. Continue Reading
