DOJ on FCPA and Agent Liability

The Justice Department’s top criminal prosecutor talked FCPA compliance at conference in Washington this week, raising a few points to consider about oversight of third parties and the importance of compliance program. Let’s get into them. 

Assistant attorney general Brian Benczkowski, head of the Criminal Division, made his remarks at the annual FCPA Conference happening this week. Much of his speech was the usual chuff about the Justice Department’s commitment to enforcing the FCPA, complete with statistics about corporate settlements and prosecution of individuals. And Benczkowski is correct: enforcement of the FCPA remains brisk.

Then he delved into implications of the Hoskins case. That’s where it starts to get interesting for compliance officers.

To refresh everyone’s memory, the Hoskins case involves Lawrence Hoskins, a British national who worked for French construction giant Alstom in the 2000s. While there, Hoskins helped to orchestrate a bribery scheme between Alstom’s U.S. subsidiary, Alstom Power, and the government of Indonesia.

U.S. prosecutors said Hoskins could be prosecuted because he was acting as an agent of Alstom Power, even though Hoskins wasn’t a U.S. citizen, didn’t work directly for Alstom Power, didn’t pay the bribes himself, and didn’t set foot in the United States while the bribes were paid. Hoskins said he was so far removed from U.S. jurisdiction that he wasn’t an “agent” under the FCPA and couldn’t be prosecuted. 

Eventually a federal appeals court here said Hoskins could qualify as an agent, depending on the facts of the case. So everyone went back to trial, and a jury convicted Hoskins last month on 11 of 12 criminal counts. 

As one might imagine, the Hoskins case has stirred up lots of discussion about a company’s potential FCPA liability for misconduct committed by its agents; and what that consequently means for corporate compliance programs. 

That’s where we get to the meat of Benczkowski’s remarks this week. 

Liability Still Depends on the Facts

To my thinking, one important part of Benczkowski’s speech was this: 

The Criminal Division will not suddenly be taking the position that every subsidiary, joint venture, or affiliate is an “agent” of the parent company simply by virtue of ownership status. Conversely, we will also not be taking the position that every parent company should automatically be held liable for the acts of its subsidiaries, joint ventures, or affiliates based on an agency theory.  Simply put, the law requires more. Each case and application of agency liability will need to be evaluated on its own and be based on provable facts that align with agency principles. 

This is important first because all he’s really saying is that the facts of each case matter. That shouldn’t be news, and for corporate lawyers and prosecutors, it’s a perfectly fine stance to take. They can argue about how a set of facts fit the FCPA statute and agency theory for years. Heck, in the Hoskins case, they have been. 

For leaders of corporate compliance programs, however, the most relevant question for you is this — who cares? 

You don’t get the luxury of a fact pattern when you design compliance programs. The whole point of a compliance program is to prevent misconduct, and you don’t know the potential fact patterns that might emerge. You can only deduce from past FCPA enforcement what future scenarios might trigger liability, and then design a program to reduce the chance of those scenario coming to pass. 

More than anything else, to me Benczkowski’s words above demonstrate yet again that compliance and legal functions are different things. They have different objectives, and need to behave in certain ways. 

I also can’t help but recall an interview I did in 2017 with Hui Chen, former compliance counsel for the Justice Department and author of the original department guidance on evaluating compliance programs. That guidance took the form of many possible questions that prosecutors might ask about your program, Chen said, depending on the facts of the case. 

Compliance officers, however, need to build a program that can provide reasonable answers to any of those questions, since you can’t know exactly which circumstances will arise in the future. 

So sure, facts will matter to Benczkowski and his lieutenants when reviewing agency liability, and so they should. For compliance officers, however, the question is still more about your program’s ability to prevent unwelcome facts from visiting your life.

A Word on Investigations and Prosecution

Benczkowski also had this to say about prosecutors deciding whether to proceed with an FCPA case: 

Before pursuing an FCPA case based on an agency theory, whether as to an individual or a company, the department will need to measure the facts against the legal standard articulated by the court.  And our prosecutors will need to be confident that their evidence will be able to carry the government’s burden of proof at trial. 

OK, sensible enough — but that leads to some interesting thoughts about the FCPA Corporate Enforcement Policy, and its emphasis on companies cooperating with investigations if they want a more favorable resolution. After all, cooperation from companies and individuals is how prosecutors generally get the facts they want want to assess. 

In theory, could a business keep totally silent about FCPA misconduct, give the Justice Department no facts to investigate, and dissuade prosecutors from pursuing a case? Sure. That might work if all parties involved maintain strict silence and non-cooperation. 

That’s just a big gamble, likely to fail. An FCPA case will always involve multiple persons, and usually multiple companies. Somebody in that picture is likely to cooperate, and then the remaining parties are in a weaker position. Moreover, those acts of silence and non-cooperation speak volumes about the company’s culture of compliance, or the lack thereof — hardly a great start to convince prosecutors to go easy on you. (It is, essentially, the strategy the Trump Administration has been using to fight impeachment, and look at how that’s gone.)

While we’re on the subject of plotting — could a company try to structure its operations to reduce its Hoskins risk? That is, Hoskins got caught in the morass of agent liability, but would another corporate structure work to dodge liability?

Benczkowski minced no words about that idea: 

If the Department were to find evidence of the use of corporate structures to shield a parent from criminal liability, or the use of agents to shield a high-level individual executive from accountability, the department likely would strongly favor prosecution in those instances.  

And who could blame the department? Maneuvers like that are a shameless attempt to avoid ethical conduct, and they’re deliberate decisions somebody has to make. They speak volumes about poor tone at the top.