Blackmail as defence from FCPA proceedings

Grete Chan, 15 January 2013

A relief for many as “forced bribes” are indeed recognized in the recent US Department of Justice (DoJ) and Securities Exchange Commission (SEC) Guidance on the Foreign Corruption Practices Act (FCPA) (note page 27). The FCPA Blog pointed out that the FCPA certainly considers cases of bribes in situations of duress or extortion, however, “economic coercion” such as threats of not issuing certain licenses without bribe does not serve any grounds against the decision in providing a bribe. In the case of United States v. Kozeny, it differentiated economic coercion from duress and extortion,

…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”

To use duress or coercion as defense in any FCPA case, the guidance provided in the footnotes the following proofs,

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.

In the Securities and Exchange Commission v. NATCO Group Inc. case, it was recognized that extortion was exerted as blackmail money was required in order to protect the welfare of NATCO’s employees in Kazahkhstan. NATCO however, did not oversee that this was accurately entered into their accounting books as they attempted to camouflage the payments, therefore resulted in civil penalties regardless of mens reas (intent), as the concept does not apply to civil proceedings.

Some Anecdotes working abroad

While many people cannot imagine how anyone who have the right mind would be in the situation to bribe other than for profit and greed, there are certainly situations where expatriates have no choice. I had a stint at the Australian Trading Commission, and those stories rolled, not to mention, bribery due to unfortunate choices of love.

There was one case where an Australian businessman was invited to meet with potential partners in China. He flew over expecting to meet with them as ordinary businessmen, only to be shuffled into a small motel room, with the door locked. His “potential partners” started violently abusing him, requesting for “gifts” such as Rolex watches, as it was the way to do business. What was told to be a scuffle broken out, the Australian businessman apparently escaped through the motel window and reported the occurrence to the Australian embassy.

Many businesses that run high-risk operations such as the petroleum industry are also highly susceptible to extortion in the foreign country. When I did temp work at one such company who had operations in Angola, I helped draft an Operations Manual that also included sections to restrict employees from purchasing diamonds from locals, as it is illegal and usually the sellers were undercover Angolan police. The company also had difficulties with obtaining proper business visas, and were tempted by local agencies for the “easy way out”. I left the company at the time when they were considering paying off the agencies for their help in obtaining the appropriate visas.

While it is a relief that the FCPA covers situations where an individual or company must make the decision in light of physical harm to themselves or its employees, the question of “this is how they do business” is still as grey as rain clouds. The FCPA does intend to police the world through US and US-affiliated companies to promote fair practices, but what if the world does not see it in the same light?

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