United States v. Hoskins: reshaping agency theory of corporate criminal liability

September 1, 2022 – On August 12, 2022, the 2nd United States Court of Appeals issued a decision United States v. corruption in Indonesia. While upholding Hoskins’ convictions for money laundering offenses, the panel was split on whether Hoskins was an “agent” of a domestic company for FCPA liability purposes, with the majority finding that Hoskins was not not an agent under the FCPA and affirming the District’s court acquittal on those counts.

The significance of the ruling, however, is not limited to the facts of Hoskins and the FCPA — and may have implications for any case involving corporate criminal liability for the officers’ actions. Companies and attorneys should take note of Hoskins and the tools it provides to navigate government investigations and limit exposure.

The Hoskin Affair

In July 2013, Lawrence Hoskins, a foreign executive of global electricity company Alstom SA (headquartered in France) was charged in Connecticut federal court with 12 counts, including seven counts of FCPA violations. The case involved a $118 million contract to build power plants in Indonesia, which the government alleged Alstom’s Connecticut-based subsidiary (Alstom US) got because Hoskins and American employees of ‘Alstom hired consultants to bribe Indonesian officials.

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Hoskins has never worked for Alstom US in a direct capacity. He was an employee of the British subsidiary of Alstom and was assigned to another subsidiary in France. The government nonetheless claimed that Hoskins, while working from France, was responsible for approving the selection and authorizing payments to consultants whom it knew would act as intermediaries in bribing Indonesian officials.

By the time Hoskins went on trial, the 2nd homer had already weighed in. In 2018, the court, ruling on an interlocutory appeal by the government, ruled that Hoskins could only be held liable under the FCPA if he called himself an “agent” of a “domestic matter.” This decision paved the way for a trial in which the decisive question would be whether Hoskins was an agent of Alstom US

The evidence at trial established the following key facts:

•Hoskins was an employee of the British subsidiary of Alstom and had been seconded to a French subsidiary of Alstom, but he did not have a formal employment contract with Alstom US;

•He was Area Senior Vice President within the “International Network” of Alstom, an internal support function which provided support to the operational business units;

•He worked with Alstom US to secure the Tarahan project, a $118 million contract in Indonesia;

• Sales and Marketing Manager for Alstom’s global boiler business and Alstom employee in the United States, Fred Pierucci, “determined” the strategy, negotiations and other aspects of obtaining the contract, so Hoskins reported to Pierucci about the Tarahan project;

•Hoskins, Pierucci and others at Alstom US decided to hire consultants who would pay Indonesian officials to secure the contract; and

• Once Hoskins and other Alstom employees identified a consultant for this purpose, they sought approval from Pierucci and others at Alstom US, who rejected Hoskins’ proposed consultant and hired one other.

The jury found Hoskins guilty on all counts of conspiracy to violate the FCPA and FCPA violations, and all but one count of money laundering. The trial court, however, upheld the money laundering convictions, but entered a judgment acquitting the FCPA charges, finding that the government had failed to establish that Hoskins was an agent of Alstom US.

On August 12, 2022, a split 2nd Circuit panel confirmed. Both the majority and the dissent applied the common law agency standard, which states that the “three elements necessary to an agency relationship are (1) the representation by the principal that the agent will act for him; (2) acceptance by the company’s agent; and (3) an agreement between the parties that the principal will control the business. »

Notwithstanding the facts noted above and the substantial deference the courts give to jury verdicts, the majority concluded that there was no agency between Hoskins and Alstom U.S. The majority pointed to the facts that (1) Hoskins was employed by a different subsidiary in a separate department of Alstom USA; (2) he was not authorized to enter into agreements on behalf of Alstom US, which eventually negotiated and authorized contracts with bribe-paying consultants; (3) Alstom US, and Pierucci in particular, “did not hire Hoskins, had no ability to fire Hoskins, and had no say in Hoskins’ compensation”; and (4) there was no evidence that Alstom US “actually controlled” Hoskins’ actions.

The dissent reportedly focused on Alstom US’s control over Hoskins’ actions “in relation to the specific events related to the Tarahan project”, not generally. According to the dissent, the jury was entitled to infer the required agency relationship based on the record of coordination between Hoskins and Alstom US in executing the scheme. For example, Alstom US ordered Hoskins to find and retain consultants, made final decisions on which consultants to retain and on what terms, ordered Hoskins to change payment terms with a consultant, and revoked its authorization. to work with another consultant.

Corporate responsibility before Hoskins

As explained below, because the agency is at the heart of corporate criminal liability, the Hoskins agency’s analysis is likely to impact all cases involving commercial crimes – not just the FCPA.

The foundation of corporate criminal liability in the United States dates back to the 1909 decision of the United States Supreme Court in New York Central & Hudson River Railroad v. United States (212 US 481 (1909)). The Court ruled that corporations can be “responsible and responsible for the knowledge and purposes of their agents, acting within the powers granted to them”, which essentially established strict liability of corporations for the actions of agents. of a corporation committed (1) as part of their agency and (2) for the purpose of benefiting the corporation.

Courts since New York Central have generally not engaged in the rigorous analysis of agency evident in Hoskins. For example, in United States v. Automated Medical Laboratories, (770 F.2d 399 (4th Cir. 1985)), a medical laboratory and some of its employees were indicted for falsifying business records. While one of these employees was “technically employed” by a subsidiary of AML, the United States 4th Circuit Court of Appeals paid little attention to this issue, simply stating that the employee and members of his team “clearly derived their authority from AML, not from [AML subsidiary] where their office was.” “Thus,” the court held, “they acted as agents of the AML.”

Similarly, in United States v. Agosto-Vega, (617 F.3d 541 (1st Cir. 2010)), the government filed charges against the owner and operator of a real estate company for violating the Clean Water Act. To evacuate the sewage, the defendant, Braulio Agosto-Vega, used trucks registered with Agosto Motors, a car dealership he owned and operated in the same office as the real estate company.

The government also accused Agosto Motors of violations of the Clean Water Act. The 1st United States Circuit Court of Appeals ruled that the evidence met New York Central’s standard because Agosto-Vega was the de facto CEO of Agosto Motors and because there was supposedly a ” inextricable relationship between “Agosto Motors and the real estate company.

Although in those cases the issue was whether the principal was liable for the breaches committed by the agent, and in Hoskins whether the agent was liable for the breaches of the principal, the preliminary question of whether there is a agency relationship is fundamental to both. The Hoskins standard should therefore apply to any case involving corporate criminal liability.

Looking Ahead: Practical Implications for Business After Hoskins

The 2nd Circuit’s Hoskins decision provides a number of tools for companies facing potential criminal liability. Although a company’s employees presumably meet the manifestation, acquiescence and control standard applied in Hoskins, the majority’s analysis makes it clear that courts should examine the facts underlying any agency relationship. alleged. A number of practical business considerations come to mind.

For example, companies must carefully define – in writing and in practice – the roles and responsibilities of each consultant, contractor, counterparty, business partner and even employees from the outset. A clear record of each potential agent’s duties, the power to bind the business (or not) and under what circumstances, and the structural limitations of the person’s relationship with the business will help the business distance itself from conduct of the person and to avoid any liability.

Similarly, if a problem arises and a company receives information suggesting misconduct involving its activities, it should immediately assess the wrongdoer’s relationship with the company. If, after evaluating the factors that led to the result in Hoskins, the Company determines that the potential wrongdoer is unlikely to qualify as an agent, the Company may reasonably decide that to report the conduct to law enforcement order is not in the best interest of the company. And when a company chooses to self-report, or an investigation is otherwise underway, Hoskins’ analysis can provide actionable issues that bolster the company’s position. business in negotiating a resolution.

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust. Westlaw Today is owned by Thomson Reuters and operates independently from Reuters News.

Daniel Koffman

Daniel Koffmann is a partner at Quinn Emanuel Urquhart & Sullivan LLP, based in the New York office. He represents corporations, boards of directors, and senior executives in sensitive matters involving criminal investigations and impeachments, internal investigations, congressional investigations, and other government disputes. He can be reached at danielkoffmann@quinnemanuel.com.

Neil Phillips

Neil Phillips is a partner in the firm’s New York office. He can be contacted at neilphillips@quinnemanuel.com.