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« APIs drive new compliance solutions | Main | Details emerge of alleged Rolls-Royce China bribes »
Wednesday
Jan092013

That's no bribe, it's ransom money

Companies often face extortionate demands from foreign police, bureaucrats, and regulators, who threaten to hold, expel, or even harm employees if ransoms aren't paid. And there have always been questions whether those involuntary payments can violate the FCPA.

The DOJ-SEC Guidance neatly answers the questions.

Before the Guidance, the issue came up in Frederic Bourke's 2009 trial for conspiracy to violate the FCPA. He asked for a jury instruction on 'true extortion.' The judge didn't issue the instruction but agreed extortion could be relevant to an FCPA defendant's intent.

But unlike criminal cases, civil books and records and internal controls offenses don't require mens rea or corrupt intent. So extortion isn't a defense. In NATCO's 2010 case, the SEC acknowledged the extortion. It said employees were threatened with fines, jail or deportation, and they believed the threats to be genuine. NATCO's civil violations, however, were based not on paying the ransom but for mischaracterizing the payments to cover them up.

                                                     *     *     *

Here's what the Guidance (at page 27) says about extortion and duress. If citations and jury instructions make your pulse race, you'll swoon over this passage. That's why we've kept the footnotes.

Does the FCPA Apply to Cases of Extortion or Duress?

Situations involving extortion or duress will not give rise to FCPA liability because a payment made in response to true extortionate demands under imminent threat of physical harm cannot be said to have been made with corrupt intent or for the purpose of obtaining or retaining business. 169

In enacting the FCPA, Congress recognized that real-world situations might arise in which a business is compelled to pay an official in order to avoid threats to health and safety. As Congress explained, “a payment to an official to keep an oil rig from being dynamited should not be held to be made with the requisite corrupt purpose.” 170

Mere economic coercion, however, does not amount to extortion. As Congress noted when it enacted the FCPA: “The defense that the payment was demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract would not suffice since at some point the U.S. company would make a conscious decision whether or not to pay a bribe.” 171 The fact that the payment was “first proposed by the recipient … does not alter the corrupt purpose on the part of the person paying the bribe.” 172

This distinction between extortion and economic coercion was recognized by the court in United States v. Kozeny. There, the court concluded that although an individual who makes a payment under duress (i.e., upon threat of physical harm) will not be criminally liable under the FCPA,173 a bribe payor who claims payment was demanded as a price for gaining market entry or obtaining a contract “cannot argue that he lacked the intent to bribe the official because he made the ‘conscious decision’ to pay the official.”174 While the bribe payor in this situation “could have turned his back and walked away,” in the oil rig example, “he could not.”175

Businesses operating in high-risk countries may face real threats of violence or harm to their employees, and payments made in response to imminent threats to health or safety do not violate the FCPA.176 If such a situation arises, and to ensure the safety of its employees, companies should immediately contact the appropriate U.S. embassy for assistance.

___________________

169 In order to establish duress or coercion, a defendant must demonstrate that the defendant was under unlawful, present, immediate, and impending threat of death or serious bodily injury; that the defendant did not negligently or recklessly create a situation where he would be forced to engage in criminal conduct (e.g., had been making payments as part of an ongoing bribery scheme); that the defendant had no reasonable legal alternative to violating the law; and that there was a direct causal relationship between the criminal action and the avoidance of the threatened harm. See Eleventh Circuit Pattern Jury Instr., Special Instr. No. 16 (2003); see also Fifth Circuit Pattern Jury Instr. No. 1.36 (2001); Sixth Circuit Pattern Jury Instr. No. 6.05 (2010); Seventh Circuit Pattern Jury Instr. No. 6.08 (1998); Ninth Circuit Pattern Jury Instr. No. 6.5 (2010); 1A Kevin F. O’Malley, Jay E. Grenig, Hon. William C. Lee, Federal Jury Practice and Instructions § 19.02 (6th ed. 2008 & Supp.2012).

170 S. Rep. No. 95-114, at 11.

171 Id. at 10.

172 Id. at 11.

173 United States v. Kozeny, 582 F. Supp. 2d 535, 540 n.31 (S.D.N.Y.
2008).

174 Kozeny, 582 F. Supp. 2d at 540 (citing S. Rep. No. 95-114, at 10-11).

175 Id.

176 These payments, however, must be accurately reflected in the company’s books and records so that the company and its management are aware of the payments and can assure that the payments were properly made under the circumstances. For example, in one instance, a Kazakh immigration prosecutor threatened to fine, jail, or deport employees of a U.S. company’s subsidiary. Believing the threats to be genuine, the employees in Kazakhstan sought guidance from senior management of the U.S. subsidiary and were authorized to make the payments. The employees then paid the government official a total of $45,000 using personal funds. The subsidiary reimbursed the employees, but it falsely recorded the reimbursements as “salary advances” or “visa fines.” The parent company, which eventually discovered these payments, as well as other improperly booked cash payments made to a Kazakhstani consultant to obtain visas, was charged with civil violations of the accounting provisions. Admin. Proceeding Order, In the Matter of NATCO Group Inc., Exchange Act Release No. 61325 ( Jan. 11, 2010), available [here] (imposing cease-and-desist order and $65,000 civil monetary penalty).

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