Recent Second Circuit Appeals Test Limits of Foreign Bribery Prosecutions
ALM Media
Vera M. Kachnowski and Peter J. Sluka
As courts and litigants continue to grapple with the extraterritorial reach of U.S. criminal statutes, two recent Second Circuit appeals—one decided, one argued pending decision—highlight potential limitations the U.S. Department of Justice faces when prosecuting non-resident foreign actors involved in alleged bribery. In the first case, the Second Circuit affirmed the dismissal of a Foreign Corrupt Practices Action (FCPA) charge against a non-resident foreign defendant that relied on conspiracy and aiding and abetting theories. In the second, the court is asked to hold that the “official act” standard of McDonnell v. United States, 136 S. Ct. 2355, 2372 (2016) applies to certain foreign bribery statutes when they serve as a predicate for U.S. prosecution. Both cases concern U.S. prosecutors’ reach over extraterritorial persons and conduct in international corruption investigations and prosecutions.
‘Hoskins’
Last August, in a rare FCPA decision, the Second Circuit limited the Department of Justice’s efforts to reach conduct by non-resident foreign nationals who are not explicitly covered by the statute. United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018). Lawrence Hoskins, a British national employed by the U.K. subsidiary of French power and transportation company Alstom S.A., was assigned to work for another Alstom subsidiary in France. Although he never set foot in the United States, Hoskins allegedly helped Alstom’s U.S. subsidiary to retain two consultants to bribe Indonesian officials to procure a $118 million contract.
The FCPA’s anti-bribery provisions apply to individuals who are officers, directors, employees, agents, and stockholders of covered securities “issuers” and “domestic concerns,” and those who take acts in furtherance of corrupt schemes while in the United States. 15 U.S.C. §§78dd-1-3. The government charged that Hoskins violated the FCPA as an agent of the U.S. subsidiary—a covered category under the statute—and that irrespective of whether he was an agent or not, he conspired with and aided and abetted the U.S. subsidiary and others in violating the FCPA. After considering the text, structure, and legislative history of the FCPA and recalling the presumption against extraterritorial application of U.S. law, the Second Circuit determined that the statute could not be extended by conspiracy or complicity statutes to individuals not specifically enumerated by it. In other words, if Hoskins does not fall into one of the categories of individuals to whom the FCPA applies, “the conspiracy and complicity statutes may not be used” to bring FCPA charges against him. 902 F.3d at 96-97. These avenues could be used, though, if the government succeeded in proving Hoskins was an agent of a domestic concern. Id.
Hoskins has been heralded as a significant rebuke of a tool in the DOJ’s FCPA arsenal—conspiracy and complicity statutes—and litigants are beginning to cite the decision as another example of the restrictions on extraterritorial application of U.S. law. For Hoskins himself, however, the practical effect of the decision is limited. The opinion left in place counts of the indictment charging Hoskins with violating the FCPA as an agent of a domestic concern. Moreover, Hoskins was separately charged with money laundering counts for the same conduct, leaving open his exposure on other grounds. His case is scheduled for trial this fall.
‘Thiam’
While Hoskins is a foreign national charged with assisting the payment of bribes to secure contracts, Mahmoud Thiam is a foreign national convicted based on his accepting bribes to award them. Thiam is the former Minister of Mines in Guinea, which holds influence over Guinea’s vast natural resources. During his tenure, Guinea was negotiating a joint venture with a Chinese conglomerate regarding access to mine gold, iron ore, diamonds, and other resources. According to evidence at trial, Thiam touted the benefits of the proposed deal to several audiences, coordinated meetings, suggested compromises to impasses in the negotiations, and was present when the final agreement was reached. Though he lacked the authority to approve the final deal, he initialed each page. Evidence also showed that Thiam received several payments totaling $8.5 million from the Chinese conglomerate, purportedly in exchange for his support of the deal. See United States v. Thiam, No. 17-2765 (2d Cir.).
If Thiam’s conduct in coordinating meetings and expressing general support sounds familiar, the widely-known case of former Virginia Governor Bob McDonnell might be why. McDonnell was convicted of Hobbs Act extortion and honest services fraud, both of which referenced the federal bribery statute, 18 U.S.C. §201, for advancing the interests of a pharmaceutical company in exchange for gifts and other benefits. The Supreme Court reversed McDonnell’s conviction because his conduct—arranging meetings, publicly supporting the company at events, and contacting other officials—did not fall within the definition of an “official act” as required under the bribery statute. McDonnell, 136 S. Ct. at 2372. The McDonnell court indicated that “significant constitutional concerns” underpinned its ruling, stating that a broader interpretation of the term “official act” would be so vague as to raise “serious concern that the provision does not ‘comport with the Constitution’s guarantee of due process.’” Id. at 2373 (quoting Johnson v. United States, 135 S. Ct. 2551, 2560 (2015)).
In Thiam, the government used a familiar tool used to reach extraterritorial conduct: money laundering under 18 U.S.C. §§1956 and 1957 because Thiam had spent some of the $8.5 million he received in the United States. In particular, 18 U.S.C. §1956(c)(7)(B)(iv) prohibits transferring the proceeds of “an offense against a foreign nation involving bribery of a public official.” To show that the money Thiam spent represented proceeds of that specified unlawful activity, the government looked to Guinea’s bribery law, which generally prohibits an official’s accepting donations or gifts in exchange for “an act within the scope of his/her functions or job.”
Thiam now argues that his conviction must be reversed because the evidence failed to show that he violated the Guinean law by committing an “official act” within the meaning of McDonnell. He contends that when a foreign law is used as a predicate for prosecution in a U.S. court, it is subject to U.S. constitutional limitations, including the prohibition of vagueness. And where the foreign law prohibits the quid pro quo bribery of a public official, the measure of vagueness is guided by McDonnell. Thiam relies on United States v. McClain, 593 F.2d 658, 670 (5th Cir. 1979), which overturned the appellant’s conviction for violating the National Stolen Property Act by importing artifacts in violation of Mexican antiquities law. Citing the ambiguous Mexican law, the Fifth Circuit held that the appellant “suffered the prejudice of being convicted pursuant to laws that were too vague to be a predicate for criminal liability under our jurisprudential standards.” Id. The same logic, Thiam argues, applies here. Without application of McDonnell to the Guinean bribery statute, that statute is too vague to serve as a predicate to U.S. prosecution because it does not adequately define the official act required.
The government maintains that the scope of bribery constituting the unlawful act should be defined by reference to foreign law, not McDonnell. Citing the Second Circuit’s holding in United States v. Boyland, 862 F.3d 279 (2d Cir. 2017), in which the court declined to extend McDonnell to 18 U.S.C. §666 and other statutes, it contends that McDonnell similarly did not purport to interpret Guinean bribery law—or any foreign law. It further maintains that the constitutional concerns raised by the McDonnell court do not apply here. In reply, Thiam argues that post-McDonnell caselaw demonstrates its applicability to statutes other than the federal bribery statute, citing, e.g., United States v. Skelos, 707 F. App’x 733 (2d Cir. 2017), and that the constitutional underpinnings of McDonnell apply to this U.S.-based prosecution.
At oral argument in October, the Second Circuit panel questioned whether some degree of deference was required to the Guinean government: “you think the Guinean government might be somewhat surprised that we held their statute unconstitutional?” The court also focused on the proffered expert testimony regarding Guinean law, suggesting that the law’s bounds might more appropriately be determined by a Guinean legal authority than McDonnell. It also questioned, however, the government’s view that Boyland limited McDonnell only to cases involving the same underlying statutes.
Practical Considerations
As these and other issues concerning the DOJ’s extraterritorial reach continue to work through the courts, counsel to foreign individuals and entities in international corruption investigations must remain mindful of the potential limits. Hoskins counsels that whether a putative foreign FCPA defendant fits within defined statutory categories will be determinative, at least in this Circuit, rather than whether such an individual was in a conspiracy or complicit with covered parties. As a result, the government may now rely more on FCPA agency theories, which were included in the Hoskins indictment as well. And the forthcoming decision in Thiam will provide clarity on the role of McDonnell when a foreign bribery statute requiring a quid pro quo is used as a predicate for U.S. prosecution. The continued evolution of these standards merits close attention going forward.
Vera M. Kachnowski is of counsel and Peter J. Sluka is an associate at Schlam Stone & Dolan, where they specialize in white-collar defense and complex civil litigation.
