SDNY Judge Rules that FCPA Does Not Apply to "True Extortions"

Transparency International points out that “[b]ribery may be so much a part of a business culture in some places, that dealing with it can seem an over-whelming challenge, and no one business, especially a small one, can fight it alone.”  The non-profit organization publishes a Corruption Perceptions Index, which ranks 180 countries based on perceived levels of corruption, with Denmark, Sweden and New Zealand scoring the highest (or cleanest) at 9.3 and Iraq scoring among the lowest at 1.3.  Azerbaijan, the country at issue in a fascinating Foreign Corrupt Practices Act (FCPA) case, United States v. Kozeny, 05 cr 518 (SAS), 2008 WL 4658807 (October 21, 2008), scores close to Iraq, at 1.9.  The score effectively means that it’s close to impossible to do business in Azerbaijan, especially lucrative business involving Azerbaijan’s oil resources, without paying bribes and kickbacks. 

FCPA Focuses on Payment not Payer

At issue in Kozeny was whether one of the defendants could avail himself of the affirmative defense under the FCPA relating to payments that “are lawful under the written laws and regulations” of the country.  Azeri law criminalizes the payment of bribes, but relieves the briber of responsibility if he had been extorted or if he subsequently reported it.  The defendant – accused of bribing Azeri officials involved in the privatization of the State Oil company – argued that both circumstances existed here, and therefore the payments he made were lawful under Azeri law.  Judge Scheindlin disagreed, pointing out that “[f]or purposes of the FCPA’s affirmative defense, the focus is on the payment, not the payer.”  The question is whether the payment was illegal under Azeri law.  If it is, then the fact that the payer may be “relieved” from criminal responsibility by Azeri law is immaterial.  “[T]here is no immunity from prosecution under the FCPA if a person could not have been prosecuted in the foreign country due to a technicality (e.g., time-barred) or because a provision in the foreign law ‘relieves’ a person of criminal responsibility.” 

FCPA Does not Apply to “True Extortions”

All is not lost for this defendant, however.  The court went on to say that he may nonetheless be permitted to argue at trial “that he cannot be guilty of violating the FCPA by making a payment to an official who extorted the payment because he lacked the requisite corrupt intent to make a bribe.”  Here, the court makes a distinction between bribes that are exacted to commence a business relationship and “true extortions” – analogous to acts of coercion that exact payments under duress – which occur after the business relationship is up and running.  Quoting the legislative history of the FCPA, the court held that

[W]hile the FCPA would apply to a situation in which a “payment [is] demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract,” it would not apply to one in which payment is made to an official “to keep an oil rig from being dynamited,” an example of “true extortion.”  The reason is that in the former situation, the bribe payer cannot argue that he lacked the intent to bribe the official because he made the “conscious decision” to pay the official.  In other words, in the first example, the payer could have turned his back and walked away - in the latter example, he could not.

If the defendant provides an evidentiary foundation for the claim that he was the victim of “true extortion,” the court concluded that it will instruct the jury that “true extortion” negates the “corrupt intent” required under the FCPA. 

Comment

The case appears to be one of first impression addressing the issue of extortion of the defendant in an FCPA prosecution.  And it raises intriguing questions.  The FCPA criminalizes payments made to corruptly obtain or retain a business.  While the absence of an extortionate situation may be readily apparent in the context of a bribe paid to enter a market, the situation is by no means clear-cut when it comes to staying in a market.  At what point does a payment made to retain business stop being simply a bribe and become an extortionate payment akin to a ransom to save one’s oil rig?  When does the payment stop being a “conscious decision” and become one from which the payer could not “turn his back and walk away?”  If one voluntarily paid a bribe to enter a corrupt market, does one forfeit the claim that subsequent bribes were products of “true extortion?”  These questions have important ramifications for individuals and entities doing business in countries with a low CPI score, where corruption is endemic not just in the business and political realms, but also in law enforcement.  

Lawyers: Dan Webb, Esq., James Reich, Jr., Esq. (Winston & Strawn LLP) (defendant); AUSA Harry Chernoff