In 2010, nearly half of all criminal fines collected by the Department of Justice - a staggering $1 billion - were for alleged violations of the Foreign Corrupt Practices Act. That Act generally outlaws the offering of bribes to foreign officials to further the wrongdoer's commercial interest.1 While this sounds intuitive enough, there are a myriad of nuances to the Act which can, and do, ensnare the most upstanding of U.S. companies, subjecting them and their personnel to criminal liability.
Consider the following scenario: A domestic construction company has work sites overseas, necessitating the frequent international shipment of materials. Such materials must clear customs before the company can take delivery. The local customs agents, however, request small handouts before releasing the materials. Of course, any delivery delays translate into work delays and, in turn, lost profits.
These sorts of scenarios play out daily all over the world, and to the extent that management ever learns of any resulting payments, they typically write them off as the cost of doing business in foreign markets. However understandable this attitude, however, it could bury the company in criminal fines and land executives in prison. Worse, this is true even though these types of payments ring of extortion.
Extortion and the FCPA
While "true extortion" is a common law defense under the FCPA, both Congress and courts have limited its availability to qualifying facilitation payments, or where there exists the imminent threat of physical harm to the payor. These concepts are discussed below.
Broadly speaking, bribery means paying for better than fair (i.e. preferential) treatment. Extortion lies at the opposite end of this spectrum, where corrupt payment is sought under the threat that the payor will otherwise receive worse than fair (i.e. discriminatory) treatment. Extortion exists on its own spectrum of severity, too. It can manifest itself - as it does in the customs scenario - by low-level officials demanding a small handout to secure their lawful assistance. Congress was mindful of this reality when it amended the FCPA to allow for a "facilitation payment" exception. To qualify under the exception, the payment must have been made "to expedite or to secure the performance of a routine governmental action by a foreign official." Determining what qualifies as a facilitation exception, however, can be very difficult, and DOJ has shown an unwavering intent on interpreting the exception very narrowly.
In addition to facilitation payments, Congress has likewise omitted from the Act those payments that occur at the opposite end of the extortion spectrum, i.e. those prompted by threats of imminent death or serious harm. The 1977 legislative history indicates that "true extortion situations would not be covered by [the anti-bribery] provision since a payment to an official to keep an oil rig from being dynamited should not be held to be made with the requisite corrupt purposes." 2 DOJ has embraced this position, noting that the threat required is that of "impending death or serious bodily injury," and not mere "economic harm." 3
The only case to have addressed the distinction between bodily and economic harm is United States v. Kozeny, 4 which involved allegedly corrupt payments to Azeri officials in connection with the privatization of Azerbaijan's state oil company. While the court acknowledged that payments extracted under threat of injury or death would not violate the FCPA, a violation would result where a payment was demanded "as a price for gaining entry into a market or to obtain a contract." In the latter instance, the payor would have been the victim of "economic extortion," but would have violated the FCPA all the same.
Ultimately, whether the extortion defense can shield a particular payment from FCPA liability is a highly factual inquiry that requires analysis by seasoned counsel. Parker Poe's Government Investigations & White Collar Defense group, led by former federal prosecutor and DOJ veteran Richard S. Glaser, Jr., regularly advises clients on such inquiries, and, more broadly, on mitigating FCPA risk without hampering their overseas business operations. The group also has extensive experience interfacing with federal authorities to facilitate a successful resolution to an FCPA investigation. For more information, please contact Eric H. Cottrell - 704.335.9850 or W.C. Turner Herbert - 704.335.6629.
1 15 U.S.C. 78dd-1 (2011) et seq.
2 S. REP. 114, 95th Cong., 1st Sess. (1977) at 11.
3 Response of the United States, Supplementary Questions Concerning Phase 3, OECD Working Group on Bribery, at 12 (May 21, 2010).
4 582 F. Supp. 2d 535 (S.D.N.Y. 2008).