Being extorted? DOJ issues new FCPA guidance on the duress defense – but questions remain

"Extortion payments made in response to credible and imminent risks of physical harm or injury may be eligible for the duress defense, but companies should exercise extreme caution when confronted with such requests."

In its latest FCPA Opinion Procedure Release, the US Department of Justice provides fresh advice on the applicability and scope of the duress defense, which may help companies avoid liability in high-stakes situations involving risks to the health and safety of their employees.

On January 21, 2022, the Department of Justice (DOJ) issued its first Foreign Corrupt Practices Act (FCPA) Opinion Procedure Release of 2022 (OPR 22-01) – the first such release in over a year – addressing the application of the duress defense to extortion payments.  While duress has previously been recognized by US courts and government regulators as a potential defense to the FCPA and other criminal statutes, OPR 22-01 provides companies and their counsel with additional guidance on when the defense is available and how to position a company to invoke it. 

At the same time, OPR 22-01 leaves readers with several unanswered questions about the scope of the defense, including whether a loss of liberty – without an imminent risk of personal injury or harm – would have been sufficient to establish duress and whether the duress defense analysis changes when a company has actual or anticipated business in the country at issue.

OPR process

The FCPA allows companies to request from the DOJ advisory opinions – known as OPRs – regarding whether certain “specific, prospective – not hypothetical – conduct” conforms with the DOJ’s “enforcement policy regarding the [FCPA’s] antibribery provisions.”[1]  The DOJ responds to such a request “by issuing an opinion that states whether the prospective conduct, would, for purposes of the Department of Justice's present enforcement policy, violate [the FCPA].”[2]

These opinions are limited in their effect and scope:  they are not binding on any agency except the DOJ, and they do not affect the issuer’s obligations to other agencies or under any other statutes or regulations.

While it can take months for the DOJ to respond to such inquiries, as was the case for the last OPR issued in August 2020 (which was requested in November 2019), a preliminary response to OPR 22-01 was issued within two days of the request.  As explained by the DOJ, a one-paragraph response was provided to the company within two days of receiving the October 2021 request and a more complete response was published online three months later.[3]

The DOJ explained that the request was prioritized due to the “highly unusual and exigent circumstances . . . including the risk of imminent harm to the health and well-being of the individuals” at issue.  The company made supplemental disclosures to the DOJ in the months prior to the publication of OPR 22-01.[4]

Facts giving rise to the duress defense request

The company filing the request had a vessel in international waters seeking to anchor while waiting to enter port in an unspecified country (Country B).  Due to a miscommunication with a shipping agent, the company’s vessel accidentally anchored in waters belonging to a different country (Country A). Country A’s navy intercepted the vessel, confiscated its logbook and other documentation, and detained its captain – who was taken ashore and jailed – as well as its crew – which was held captive on the boat. 

OPR 22-01 repeatedly notes that the detention presented a significant health risk to the captain, who – according to the company – was “suffering from serious medical conditions that would be significantly exacerbated by the circumstances and conditions of his detention.”  As further explained in a footnote, the company “described the conditions of the captain’s detention, including the lack of medical treatment and medical equipment necessary to manage the captain’s serious medical condition, thus creating a serious and imminent threat to his health, safety, and well-being.”[5]

Shortly after the detention, a “third-party intermediary” purporting to act on behalf of Country A approached the company and requested a cash payment of $175,000 in exchange for the release the captain, the crew, and the vessel. The company hired its own representative to represent it in its discussions with the third party and obtain additional information, such as “documentation setting forth charges or an enumerated fine amount” in order to “ensure that the payment would be made pursuant to a fine or other penalty resulting from a legal or regulatory violation.”  The third party repeatedly rejected the requests.

In parallel, the company communicated the situation to US authorities and requested assistance with the rescue of the captain, crew, and vessel.  OPR 22-01 suggests that the US government, in turn, may have contacted Country A authorities.  According to the DOJ, “none of those avenues bore fruit.” 

The company, in turn, requested an OPR as it suspected that the “payment was intended for one or more Country A government officials” and thus could run afoul of the FCPA.

Duress defense: Two significant findings

OPR 22-01 contains two significant findings.  First, the DOJ found – under the “business purpose” test of the FCPA – that the payment was not motivated by an intent to obtain or retain business. The DOJ explained that the company did not have ongoing or anticipated business with Country A, and the company only interacted with Country A as a result of a miscommunication in the form of incorrect anchoring coordinates from Country B.  Hence, any payment would not be covered by the FCPA at all.

Second, and more importantly for the purposes of this analysis, the DOJ found that the duress defense was available to the company in this situation because the primary purpose of the payment was not to corruptly influence a government official to obtain or retain business but rather to “avoid imminent and potentially serious harm to the captain and the crew of the [company] vessel.”[6]

In the most recent FCPA case to examine the duress defense, United States v. Kozeny, the district court explained that “true extortion” – where an individual is forced to make a payment under threat of injury or death – is a defense under any criminal statute because actions taken under duress lack the requisite intent.  As explained by the Second Circuit on appeal: “A person acts corruptly [under the FCPA] if he acts voluntarily and intentionally, with an improper motive of accomplishing either an unlawful result or a lawful result by some unlawful method or means. The term ‘corruptly’ is intended to connote that the offer, payment, and promise was intended to influence an official to misuse his official position.”[7]

Conversely, as explained by the district court, “an individual who is forced to make [a] payment on threat of injury or death would not be liable under the FCPA” because “[f]ederal criminal law provides that actions taken under duress do not ordinarily constitute crimes.”[8]  The district court identified three elements to establish duress: (1) “a threat of force directed at the time of the defendant's conduct”; (2) “a threat sufficient to induce a well-founded fear of impending death or serious bodily injury”; and (3) “a lack of a reasonable opportunity to escape harm other than by engaging in the illegal activity.”[9]

This position is consistent with the guidance in the DOJ/SEC FCPA Resource Guide, which provides that “[s]ituations 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.”[10]

In OPR 22-01, the DOJ was careful to differentiate the circumstances presented from situations in which “a company is threatened with severe economic or financial consequences,” explaining that payments made in response to purely economic coercion, especially in countries in which companies are attempting to do business with government actors, may give rise to FCPA exposure.[11]  Similar guidance appears in the FCPA Resource Guide, which explains that “[m]ere economic coercion . . . does not amount to extortion.”[12]

Unanswered questions

Would the DOJ have arrived at the same conclusion if Country A had significant business dealings and ongoing operations in its borders?  What if the detention occurred in a country where, because of economic objectives and/or obligations, the company regularly sent its vessels into the country’s ports? What if it was likely that, because of the nature of its business, the company was likely to run repeatedly into these or similar government officials?

While the DOJ explained that the captain has a “serious medical condition” that could be exacerbated by a “lack of medical treatment and medical equipment,” the DOJ did not provide any specifics in OPR 22-01 about how the health of the crew – which remained aboard the vessel during the detention – was at risk.  Would the analysis have changed if the captain had been in perfect health?  What if the captain had been detained along with the crew aboard the vessel with uninterrupted access to his medical equipment and medicine? 

Finally, how should the company have responded if the third-party representative had not presented a package deal for the release of the captain, crew, and vessel, but instead assigned a price for each person and then a separate price for the ship?  Would the company have been justified in making a payment specifically for the release of the vessel if it could have freed the captain and crew by paying a lesser amount?  Like the Second Circuit in Kozeny, OPR 22-01 focused squarely on threats to personal physical safety, even though the district court there (echoing the FCPA’s legislative history) opined that payments made to “keep an oil rig from being dynamited” would constitute “true extortion.”

The first set of questions concerns the availability of the duress defense when the company being extorted is engaging – or plans to engage – in economic activity within the country at issue.  OPR 22-01 explains that the payment at issue was not made to retain or obtain business because the company had “no ongoing or anticipated business with Country A, and the entire episode appears to be the result of an error[.]”[13] The DOJ contrasts the situation in OPR 22-01 with that in which a payment is made “under circumstances that companies may perceive as economically coercive, especially in countries in which they are in historical, pending, ongoing, anticipated, or sought after business relationships with government actors.”[14]

This distinction is not always as stark in real life, where companies that operate in high-risk countries may face situations where threats to employee safety collide with threats to business activities. While the DOJ does not provide any bright line guidance for such situations, OPR 22-01 suggests that the DOJ may be more reluctant to honor the duress defense when there are indications of economic motives. 

The second set of questions cuts to the issue of whether restrictions on liberty, in the absence of an imminent risk of physical harm or injury, would be sufficient to support a finding that any extortion payments were not made with the requisite intent.  We are unaware of any US case law on this issue, but the UK analogue to the FCPA Resource Guide – known as the Bribery Act Guidance – does recognize restrictions on liberty as a grounds for claiming duress against otherwise improper payments under the Bribery Act 2010:  “It is recognised that there are circumstances in which individuals are left with no alternative but to make payments in order to protect against loss of life, limb or liberty. The common law defence of duress is very likely to be available in such circumstances.”[15]

The final set of questions presents the issue of whether, when confronted with an extortion request, companies should be more cautious when the payment can effectively be split into two: (1) money intended to avoid risk of physical injury or harm; and (2) money intended to secure property, assets, or goods.  While that was not the case in OPR 22-01, as there was no itemized bill for the $175,000 demand, one could envision a situation in which there are different price tags for the release of persons versus the return of property. 

As explained above, case law and regulator guidance indicate that payments purely intended to protect company assets where there is no risk of personal injury or harm may not be eligible for the duress defense.

Takeaways

While situations of extortion are – thankfully – rare, companies operating in high-risk jurisdictions should develop guidance for responding to such situations.  We recommend that companies require in their policies that any requests for questionable payments, whether extortion or otherwise, be promptly communicated to a company’s legal/compliance departments so that they can coordinate a response, which may warrant guidance from outside counsel and coordination with government regulators. 

In the most extraordinary situations where employees receive a demand for payment and are not given the opportunity to contact others, any such requests – as well as any payments made in response to such requests – must be reported to the legal/compliance representatives as soon as it is safe to do so. 

Extortion payments made in response to credible and imminent risks of physical harm or injury may be eligible for the duress defense, but companies should exercise extreme caution when confronted with such requests, especially when the requestor is a government official or there is concern that the requestor may be acting on the behalf of a government official.  Efforts should be made to carefully vet the requests, to understand the basis for any payments, and to obtain records documenting such payments.  

Companies should consider whether there is a credible basis for arguing that any payments were intended to avoid physical harm or injury rather than prevent an economic harm, such as the loss of company property or assets.  If there is a mixed interest – such as securing the captain and crew as well as the vessel, or protecting a company oil rig as well as those working on it, or a company warehouse as well as its workers – then the DOJ may accept the duress defense, but any concern about the risk of physical harm/injury should be clearly documented.  Moreover, readers should keep in mind that the company in OPR 22-01 was credited with proactively raising this issue with regulatory authorities and seeking an advisory opinion before taking any action. 

Finally, companies should also be mindful that, while duress may be a defense to the FCPA’s anti-bribery provisions, it is not a recognized defense to the statute’s recordkeeping provisions, which require that companies subject to the FCPA “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect [their] transactions and dispositions of the assets.” 

Any extortion payments must be clearly documented in the company’s books and records.  A failure to accurately account for such payments could raise questions about the legitimacy of such payments and run afoul of recordkeeping requirements.  Consider the SEC’s 2010 FCPA enforcement action against NATCO Group Inc., which was fined due to the company’s failure to accurately record suspect payments to Kazak prosecutors, who threatened to fine, jail or deport workers if the NATCO’s subsidiary did not pay cash fines totaling $45,000.[16]  In that case, employees used personal funds to make the payments, which were reimbursed by the subsidiary and described in its records simply as “visa fines.”[17]

To learn more about the implications of OPR 22-01for your company’s compliance policies, please contact any of the authors.

An earlier version of this alert appeared on Law360 on February 16, 2022.