Subscribe to our FinCrimes Update for news about the Foreign Corrupt Practices Act and related prosecutions and enforcement actions.
On March 2, 2017, a three judge panel for the United States Court of Appeals for the Second Circuit heard oral arguments in U.S. v. Hoskins. The government charged U.K. citizen Lawrence Hoskins with FCPA violations as part of a larger scheme involving a U.S. subsidiary of French company Alstom S.A. Hoskins, a non-resident foreign national who did not act on U.S. soil and who was an executive of a non-U.S. company (Alstom UK), argued in federal district court that Congress did not intend for people like him to be subject to direct FCPA liability, and that the government cannot circumvent Congressional intent by charging him with accomplice liability. In August of 2015, the federal district court in Connecticut ruled in Hoskins’ favor, holding that the government would first have to show that Hoskins was subject to direct liability as an agent of a U.S. concern in order to reach accomplice liability. The legal issues at hand are detailed in previous FCPA Scorecard posts here and here.
In addition to the important question of the scope of liability of foreign nationals under the FCPA, this argument has a secondary importance related to the right of the government to appeal criminal matters under Title 18 U.S.C. § 3731. Section 3731 allows the government to appeal “from a decision, judgment, or order of a district court dismissing an indictment or information or granting a new trial after verdict or judgment, as to any one or more counts, or any part thereof….” Here, Hoskins argues that the court did not dismiss any counts, so the government had no right to make the interlocutory appeal. For its part, the government argues that the court’s ruling was effectively a dismissal of a portion of a count, making the matter appealable.
In ruling on the Hoskins case, the Second Circuit will have the potential to expand or limit both the reach of the FCPA, and the power of the federal government to bring interlocutory appeals when a trial court rules against it in a criminal matter.
On March 29, the UK Serious Fraud Office charged another Alstom S.A. employee, Terence Stuart Watson, in its ongoing corruption investigation of the beleaguered French power and transportation company. The SFO has previously charged 6 other individuals in this investigation. The charges against Watson, the Alstom Country President for the UK and Managing Director of Alstom Transport UK & Ireland, are related to alleged bribery in Hungary concerning the companys supply of trains to the Budapest Metro between 2003 and 2008. The SFOs prior charges have involved alleged corruption spanning Hungary, India, Poland, and Tunisia, and included charges against the former Senior Vice President of Ethics and Compliance related to alleged bribery in Hungary. In late 2014, the company pleaded guilty to FCPA charges brought by the US Department of Justice, and agreed to pay a record $772 million fine to resolve those charges.
On November 13 a federal district judge sentenced Alstom S.A., a French power and transportation company, to pay a record $772 million fine to resolve FCPA charges. The fine, agreed on by Alstom and various subsidiaries in December 2014 as part of its guilty plea, is the largest criminal FCPA fine ever paid. For other prior coverage on Alstom, please see here.
On August 13, the U.S. District Court for the District of Connecticut held in the individual prosecution of Lawrence Hoskins, a former executive of the U.K. division of Alstom Power, S.A., a French power and transportation company, that the government cannot charge a non-resident foreign national with conspiracy to violate the FCPA if he is not subject to direct liability under the statute due to lack of jurisdiction. United States v. Hoskins, No. 3:12-CR-238 (D. Conn. Aug. 13, 2015). Under the FCPA's anti-bribery provisions, jurisdiction extends to three types of individuals and entities: (1) domestic concerns, defined as U.S. citizens, residents, or nationals, or any company organized under the laws of a U.S. territory or having its principal place of business in the U.S.; (2) a United States issuer of securities, or any officer, director, employee, or agent thereof; and (3) any person who while in United States territory commits an act in furtherance of an FCPA violation. See 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3. The government, however, has maintained a more expansive view of the FCPA's jurisdiction. As detailed in its FCPA Resource Guide, the government has argued that "[a] foreign national or company may also be liable under the FCPA if it aids and abets [or] conspires with . . . an issuer or domestic concern, regardless of whether the foreign national or company itself takes any action in the United States." This theory of liability was recently tested in Hoskins. In Hoskins, the government alleged that Hoskins approved and authorized payments to consultants retained for the sole purpose of paying bribes to Indonesian government officials to secure a contract to build power stations for Indonesia's state-owned electric company. Initially the indictment alleged that Hoskins was an agent of Alstom's U.S. subsidiary, and thus an agent of a domestic concern. That count of the indictment was later amended to allege that he conspired by acting "together with" a domestic concern to violate the FCPA. Hoskins moved to dismiss the count, arguing that an individual cannot be prosecuted for conspiracy to violate the FCPA when he himself is not subject to the statute's jurisdiction. The district court agreed and applied the doctrine set forth in Gebardi v. United States, 287 U.S. 112 (1932): where Congress passes a criminal statute that excludes a certain class of individuals from liability, the government cannot evade congressional intent by charging those same individuals under a conspiracy or aiding and abetting theory of liability. The court examined the FCPA's text and legislative history and determined that Congress did not intend to extend accomplice liability to non-resident foreign nationals who are not otherwise subject to direct liability. The court ultimately ruled that the government would have to prove at trial that Hoskins was acting as an agent of a domestic concern — and therefore subject to direct liability — in order to allege that he conspired to violate or aided and abetted a violation of the FCPA.
On May 12, the UK Serious Fraud Office announced yet more corruption charges against Alstom SA, the beleaguered French power and transportation company that last year pleaded guilty in the US to allegations of bribery and agreed to pay the largest criminal penalty for FCPA violations ever to the DOJ. The new charges were brought against the former senior vice president of ethics and compliance and director of Alstom International Limited for alleged bribery in Hungary related to a Budapest Metro contract for trains. The charges arise from the same conduct as last months bribery charges against another company and employee affiliated with Alstom, and continue the recent trend of compliance professionals facing increased personal liability. The SFO has now charged six individuals in its long-running investigation of Alstom.
Continuing the steady drumbeat of corruption allegations against Alstom SA, a French power and transportation company, on April 16 new bribery charges were brought by the UK Serious Fraud Office against a company and employee affiliated with Alstom. These latest charges related to alleged bribery in Hungary related to a Budapest Metro contract for trains. The charges are in addition to 2014 charges in the UK against the same Alstom subsidiary and other former employees related to corruption in India, Poland, and Tunisia, and separately, according to news reports, related to alleged bribes in Lithuania. Alstom also pleaded guilty last year in the US to allegations of bribery in yet a different set of countries, and agreed to pay the largest criminal penalty for FCPA violations ever to the DOJ. Several Alstom employees in the US have either pleaded guilty or are under indictment.
On March 23, former Bechtel Corp. executive Asem Elgawhary was sentenced to 42 months in prison and ordered to forfeit $5.2 million for accepting kickbacks in connection with a scheme to manipulate the bidding process for power contracts in Egypt. Elgawhary, a dual citizen of the U.S. and Egypt, pleaded guilty in December to violations of the mail fraud, conspiracy, and tax laws in federal court in Maryland. As the general manager of a joint venture between Bechtel and Egypt's state-owned oil company, Elgawhary accepted payments from three power companies in return for favorable treatment in the contract bidding process. One of those companies was Alstom, S.A., which last December pleaded guilty to a number of FCPA violations, including paying bribes to Elgawhary. As the recipient of the bribes, Elgawhary was not charged under the FCPA, but the DOJ nevertheless pursued numerous criminal charges against him, continuing its trend of attempting to address the demand side of foreign corruption as well as the supply side. Elgawhary's case also illustrates the risks inherent in entering into certain business relationships with state-owned or controlled entities; in the Alstom plea papers, Elgawhary, an executive of a U.S. company, was explicitly characterized as an "Egyptian official."
On December 22, 2014, Alstom S.A. (Alstom), a French power and transportation company, and various subsidiaries pleaded guilty to a range of FCPA violations and agreed to pay a $772 million criminal fine, the largest on record for an FCPA case. According to DOJ officials, the bribery scheme "spanned many years, occurred in countries around the globe and in several business lines." The size of the fine was also no doubt influenced by DOJ's perception that Alstom was insufficiently cooperative, at least until several of its executives were indicted.
On December 29, 2014, the U.S. District Court for the District of Connecticut denied a motion to dismiss the indictment brought by Lawrence Hoskins, a former employee of Alstom S.A., the French power and transportation company that recently pleaded guilty to a massive scheme to violate the FCPA and agreed to a record $772 million criminal fine. Hoskins was charged in connection with activities involving a Connecticut-based Alstom subsidiary, Alstom Power, Inc. Alstom Power entered into a Deferred Prosecution Agreement as part of the broader Alstom settlement. Hoskins offered several arguments to dismiss the indictment, including that he had left Alstom (and therefore withdrawn from any conspiracy) outside the statute of limitations, that he was not actually an agent of Alstom Power and that the FCPA cannot be applied to purely extraterritorial conduct. With regard to the withdrawal claim, the court noted that the defendant bears the burden of proving some type of affirmative act of disavowal, not just a mere cessation of activity. Because the indictment did not contain facts establishing the defense and the government had not made a full proffer of its evidence, the court held that it could not determine pretrial whether the defendant had in fact withdrawn from the conspiracy. The court also held that a trial was required to resolve Hoskins's claim that he was not an agent of Alstom Power, noting that "the existence of an agency relationship is a highly factual inquiry" dependent on a number of factors. Lastly, while Hoskins claimed that the FCPA could not apply to him because he engaged in no conduct in the United States, the indictment alleged "that he used domestic wire transfers to promote the conspiracy."
A Swiss subsidiary of Alstom SA, the French engineering giant, agreed last week to settle corruption-related charges with Swiss authorities and pay a total sanction of USD $42.7 million. According to an Office of the Attorney General (OAG) press release, Alstom Network Schweiz AF has been convicted of not having taken all necessary and reasonable organizational precautions to prevent bribery of foreign public officials in Latvia, Tunisia and Malaysia. Key to the OAG action was the finding that "the use of agents, particularly on the basis of success fees, in countries with a high level of corruption (cf. corruption index of Transparency International) bears a considerable risk of criminal prosecution for the companies." For in-house counsel and compliance professionals, the Alstom settlement offers a number of practice pointers:
- This action confirms Switzerland's standing as having one of the most active anti-corruption enforcement programs among OECD countries. According to Transparency International's Progress Report 2011: Enforcement of the OECD Anti-Bribery Convention, 7 of the 38 signatory countries have "active enforcement," with Switzerland among the 7 most active. Companies with operations implicating Swiss jurisdiction must remain mindful of the active Swiss anti-corruption program, and confirm that compliance controls are sufficient.
- The investigation involved 15 countries and the Swiss government submitted numerous requests for mutual legal assistance to foreign criminal prosecution authorities. This confirms the recent trend in which anti-corruption investigations involve extensive cooperation among law enforcement authorities from different countries.
- The OAG press release commented that "the group had implemented a Compliance policy that was suitable in principle, but that it had not enforced it with the necessary persistence." Thus, the OAG looked to the actual implementation of Alstom's compliance policy, in addition to the content of the policy itself, and found the implementation was lacking.
- The conduct in question involved consultants engaged by Alstom with consultancy agreements using success fees, portions of which were then passed to foreign government officials. The OAG press release states, "Only by extensive efforts in compliance and by rigorously enforcing and controlling the accordingly strict internal policy may this risk of criminal prosecution be reduced to an extent that is in accordance with the law." This highlights once again the risks associated with third parties and the need to impose appropriate compliance controls on relationships with third parties.
Alstom SA issued its own press release on the matter.
- Heidi M. Bauer and Dan Ladd to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Tim Lange to discuss "Update from 2019 NMLS Conference" at the California Mortgage Bankers Association Mortgage Quality & Compliance Committee webinar
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Jon David D. Langlois to discuss "Transaction management-issues surrounding purchase & sale agreements, post acquisition integration & trailing docs" at the Investment Management Network Residential Mortgage Servicing Rights Forum
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Daniel P. Stipano to discuss "The state of the BSA 2019: What’s working, what’s not, and how to improve it" at the West Coast Anti Money-Laundering Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Brandy A. Hood to discuss "Flood NFIP in the age of extreme weather events" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "UDAAP compliance" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "State examination/enforcement trends" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Benjamin K. Olson to discuss "LO compensation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Major state law developments" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Leveraging big data responsibly" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program